There are several common legal structures under which you can set up your business. Which one is going to depend on what type of business you are setting up, who else is involved in this plan with you, your own personal preferences, among several other factors.
Here’s a quick overview of your options.
Single owner
This is still the most common type of business structure, especially for small businesses just starting out. This means that one person owns and is responsible for the business. They make all the decisions, but they also have all the financial responsibility. Business profits or losses are reported on the owner’s personal taxes.
General Society
This is very similar to a sole proprietorship, except there is more than one person involved in owning and operating the business. The business is still connected with you, but also with your partners. This means that everyone shares the management and financial responsibilities of the company.
Corporation (LTD or INC)
A corporation is an entity that is formed and does business for itself, separate from any person personally. This means that the financial situation of the company is not transferred to the person who owns the company.
While this may seem like the best option to avoid personal liability if something happens within the company, it can be extremely tedious and expensive to set up and maintain. This is not a viable option for most small business owners because most of them cannot afford the necessary setup or record keeping fees.
Limited Liability Company/Corporation (LLC)
This is a newer and very popular type of business structure because it offers the benefits of a corporation, without requiring many of the same hassles. Unlike a limited liability company, you can set up this type of company with just one person. It provides much of the financial protection of a corporation, but does not require as extensive measures to maintain.
Limited Liability Partnership (LLP)
This is a different type of partnership, but it also provides some of the financial protection of a corporation. Unlike an LLC, you must have at least two partners. However, it is easier to maintain and maintain your structure than an LLC. This business structure is also much more common in the UK, where LLCs are more popular in the US.
How to establish your business is an important decision. The structure you choose could make a big financial and legal difference. It will depend on many factors, including local laws. Take the time to research your options and talk to an accountant or other business professional and anyone else involved in your business before making a decision.
