There are many decisions that need to be made before a business can open its doors. One of these decisions involves choosing the type of business structure that best meets your needs. Our readers should consider the financial and legal aspects of various types of business structures before proceeding.
Of course, a person can always just go at it alone and open up a sole proprietorship. In this structure, a single person owns and operates the business. While there can be tax advantages to opening a sole proprietorship, it is important to remember that the sole proprietor can be held personally liable for the business’s debts or if the business is the subject of a lawsuit.
Sometimes, a person wants to work with others when it comes to owning and operating a business. In this scenario, they may want to structure the business as a partnership, wherein each partner is able to make decisions regarding the business. Like sole proprietorships, there are tax advantages to structuring a business as a partnership, but if the business is structured as a general partnership, each partner can be held personally liable for the business’s debts or if the business is the subject of a lawsuit.
Another option is to structure a business as a corporation. This can be a complicated endeavor, as the corporation is considered a separate entity for legal purposes from those who own it. There are regulations to follow and certain tax requirements that must be met. However, unlike sole proprietorships or partnerships, owners of a corporation are not personally liable for the corporation’s debts or if a lawsuit is filed against the corporation.
These are only three types of ways a business can be structured. S-corporations and limited liability companies may be other options worth considering, although these business structures can be complex. Choosing the right business structure can affect the business’s viability. It is not a decision that should be made lightly. With the right information on financial regulatory issues and other legal aspects of opening a business, entrepreneurs can structure their business in a manner that allows the business to be successful.
Source: Entrepreneur, “Business Structure Basics,” accessed May 8, 2018