Business Questions: How Should I Structure My Business
Quick Start: Set up a Sole Proprietorship to get started and then look at other options when you are making money.
The most common structures for the entrepreneur is sole proprietor and LLC. However, you will decided which structure based the type of business you are running and who else is involved with you.
I know you want to know about the different legal business structures, so here are the main types:
- Sole Proprietorship
- Limited Liability Company/Corporation (LLC)
- General Partnership
- Limited Liability Partnership (LLP)
Most small businesses getting started will use this type of business structure. It is the easiest and least expensive to set up.
Basically this means that one person owns the business and is responsible for the business. This sole owner makes all the decisions and are financially responsible for the business.
You have to report the profits/losses of the business on the proprietor’s personal taxes.
Limited Liability Company/Corporation (LLC)
The second most popular business entity for small businesses is the LLC. The reason that this is popular is because you receive some of the same benefits as a corporation but is easier to setup and manage.
There is also some financial protection as does a corporation.
Similar to a sole proprietorship but there is more than one person involved in owning and operating the business. The business is tied to you and to your partners. You and your partners share in the financial responsibility as well as the overall management of the business.
On the opposite end of the scale is the corporation. It is not owned by a person but is a distinct entity. It does business on its own. It is not tied to a person. The financials are separate.
The downside for most small businesses are setup and maintenance fees. Specific types of records must be kept with annual meetings.
The upside is that you are separated from personal liability. There are certain tax advantages.
Limited Liability Partnership (LLP)
Similar to a LLC, a LLP does offer some of the financial protection of a corporation. However, different from an LLC, you must have at least two partners in a LLP.And a LLP is easier the setup and maintan than a LLC.
LLPs tend to be more common in the UK and LLCs tend to me more common in the U.S. However, it is easier to maintain and keep your structure than an LLC. This business structure is also much more common in the UK
You want to spend some time thinking about how you want to setup your business. You also should consult a CPA and lawyer. They will have insights and advice based on where you live, the type of business and how much money you are earning.
Take time to research but don’t let this stop you from getting started!