Choosing an appropriate small business structure is essential. Not only will it influence your day-to-day operations, but it will also affect the taxes you pay and your personal assets. Before you officially open those doors, you should choose the right business structure aligns with your goals. Choosing the best business structure is a big decision, but with the right information, it can become a smart and easy choice.
Choose the Right Small Business Structure
When choosing a small business structure, you may want to consider a balance between legal protection and benefits as the structure will affect how taxes are filed, protection of your assets, the amount of paperwork needed, and other aspects. There are many types of structures to choose from which can make finding the right fit challenging.
According to the U.S. Small Business Administration, the most common small business structures are:
- Sole Proprietorship
- Partnership
- Limited Liability Company (LLC)
- Corporation
Sole Proprietorship
A Sole Proprietorship is the easiest to form out of these options. A Sole Proprietorship gives you complete control of how your business operates. However, this structure does not give you a separation between owner and the business entity, meaning your personal assets can be held responsible if you owe any debts or if the business faces litigation. Generally, this structure can be great if you are fresh into the market and want to test a business idea.
Partnership
This small business structure is the simplest form for two people wanting to run a business together. There are two types of Partnerships. Limited Partnerships (LPs) and Limited Liability Partnerships (LLPs). LPs usually have one general partner with unlimited liability while the others have limited liability. This often means the partner with less “skin in the game”, so to speak, also has limited control. Luckily, with a fair contract, this power difference doesn’t have to threaten the working relationship between partners. LLPs, on the other hand, give limited liability to both partners. This structure will protect each owner against debt and litigation.
Limited Liability Company (LLC)
A Limited Liability Company operates differently by letting the owner combine the advantages of both a corporation and partnership. This structure also protects you and your personal assets in most situations. LLCs have a limited life in most states, so if you’re considering filing your business as one, check your state’s limitations. At the end of the LLCs life, you may need to sell, transfer ownership, or dissolve the business. This structure may be attractive for someone who is experienced in the business ownership and wants protection.
Corporation
Sometimes called a C-corp, a corporation is a completely different legal entity from its original owner(s). Corporations provide the most safety when it comes to personal assets but does come with more startup cost. Owners cannot simply make changes to their business whenever they’d like. State law usually requires more extensive record keeping and may call for a vote among the shareholders if major decisions are to be made. But corporations aren’t just extra work. They offer significant benefits as well. Not only are the owners’ assets entirely independent from the businesses, but the corporation can also raise funds through stock options. Small business owners who are looking to eventually sell or raise money may find this option beneficial.
Let ProSe Legal Guide Your Small Business
The mountain of documents required to open your business can feel nothing short of overwhelming. At ProSe Legal, our professional LDAs have helped our neighbors open their small businesses for years so you can get right to the best parts of business ownership! Once you’ve chosen your small business structure, let us help ease the burden of starting the next chapter of your life.
today to schedule your appointment at any of our locations across the Inland Empire!
