Which Company Structure is Right for You?
Which Company Structure is Right for You?
As a small business owner, you need to make important decisions regarding the business structure for your company. Each structure has certain advantages and disadvantages, particularly in the area of tax requirements. Due to the complexities of tax law, it’s highly recommended that you seek legal advice from a qualified tax professional prior to making your final decision.
Sole Proprietorship: Sole proprietorship is the simplest type of company structure. It may be your best choice if you work alone and have no significant liability risks. You may need to obtain a business license or other paperwork, but the requirements are generally less than for other business structures.
Depending on state laws, you may be able to operate a sole proprietorship under your name, or you may select a business name. You will probably not need a federal tax identification number, as your business taxes can be filed alongside your personal taxes, using additional forms. A sole proprietorship generally provides no liability protection for the business owner. If anything goes wrong, you may be personally sued.
Partnership: A partnership is, in many ways, basically a sole proprietorship with multiple owners. The partnership will need a business name and a federal tax identification number. A partnership agreement must be drawn up and signed by all partners. This document must, among other requirements, contain a specific formula for division of profits between partners. The partnership agreement can be complicated, and may serve as evidence in a court of law, so it is highly recommended that you consult an attorney for assistance in drawing up the agreement.
Income from the company, in effect, passes through the partnership to the individual partners. The partnership will file tax forms demonstrating its financial performance, and a statement will sent to each partner documenting that performance and indicating that partner’s tax obligations. The partners are then responsible for paying those taxes. A partnership, like a sole proprietorship, provides no liability protection. The partners are eligible to be sued.
Limited Liability Company: The next step for partnerships that are concerned about liability is the limited liability company. The protections offered by LLC organization vary widely between jurisdictions. Therefore, it is highly recommended that legal counsel be obtained prior to organizing as an LLC.
Corporation: A corporation is, by far, the most complicated type of business structure to organize and run. However, it is also the only structure that fully protects the owners from lawsuits against the business. Unlike sole proprietorships and partnerships, owners of corporations are paid a wage (plus dividends) rather than "sharing" in the revenue of the company. The corporation is considered a separate legal entity. If a lawsuit is brought, it will be against the company rather than the company owners. Of course, the owners may still be sued for their own actions, but not those of the company. Organizing a corporation requires owners to follow a complicated step by step process. Therefore, any company should retain a qualified attorney to assist with the formation of corporation.
Choosing one now doesn't mean you're locked in (although it does take some paperwork to move from one to another). Your small business may start as a sole proprietorship or partnership and could become a corporation, which is a common company structure roadmap for many small businesses that grow.
Which Company Structure is Right for You - To learn more about this author, visit Heather Villa's Website.
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Which Company Structure is Right for You?
As a small business owner, you need to make important decisions regarding the business structure for your company. Each structure has certain advantages and disadvantages, particularly in the area of tax requirements. Due to the complexities of tax law, it’s highly recommended that you seek legal advice from a qualified tax professional prior to making your final decision.
Sole Proprietorship: Sole proprietorship is the simplest type of company structure. It may be your best choice if you work alone and have no significant liability risks. You may need to obtain a business license or other paperwork, but the requirements are generally less than for other business structures.
Depending on state laws, you may be able to operate a sole proprietorship under your name, or you may select a business name. You will probably not need a federal tax identification number, as your business taxes can be filed alongside your personal taxes, using additional forms. A sole proprietorship generally provides no liability protection for the business owner. If anything goes wrong, you may be personally sued.
Partnership: A partnership is, in many ways, basically a sole proprietorship with multiple owners. The partnership will need a business name and a federal tax identification number. A partnership agreement must be drawn up and signed by all partners. This document must, among other requirements, contain a specific formula for division of profits between partners. The partnership agreement can be complicated, and may serve as evidence in a court of law, so it is highly recommended that you consult an attorney for assistance in drawing up the agreement.
Income from the company, in effect, passes through the partnership to the individual partners. The partnership will file tax forms demonstrating its financial performance, and a statement will sent to each partner documenting that performance and indicating that partner’s tax obligations. The partners are then responsible for paying those taxes. A partnership, like a sole proprietorship, provides no liability protection. The partners are eligible to be sued.
Limited Liability Company: The next step for partnerships that are concerned about liability is the limited liability company. The protections offered by LLC organization vary widely between jurisdictions. Therefore, it is highly recommended that legal counsel be obtained prior to organizing as an LLC.
Corporation: A corporation is, by far, the most complicated type of business structure to organize and run. However, it is also the only structure that fully protects the owners from lawsuits against the business. Unlike sole proprietorships and partnerships, owners of corporations are paid a wage (plus dividends) rather than "sharing" in the revenue of the company. The corporation is considered a separate legal entity. If a lawsuit is brought, it will be against the company rather than the company owners. Of course, the owners may still be sued for their own actions, but not those of the company. Organizing a corporation requires owners to follow a complicated step by step process. Therefore, any company should retain a qualified attorney to assist with the formation of corporation.
Choosing one now doesn't mean you're locked in (although it does take some paperwork to move from one to another). Your small business may start as a sole proprietorship or partnership and could become a corporation, which is a common company structure roadmap for many small businesses that grow.
Which Company Structure is Right for You - To learn more about this author, visit Heather Villa's Website.
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Kim CastleWith nearly two decades in the advertising and design business, with clients like Domino's Pizza, General Motors, Direct TV, Pedigree, Wolfgang Puck, Higher Octave Music, Hollywood Celebrity Products, Disney, and Paramount, as well as thousands of entrepreneurs around the world define, structure, communicate, and position their business for greater profits, BrandU(R) co-creators Kim Castle and W. Vito Montone discovered that entrepreneurs could experience the same power that big brands command for a fraction of the cost with the world's only process-based results-drive Integral approach to business creation. BrandU(R) is helping entrepreneurs grow with the power of extreme clarity from idea...to brand...to market(TM) and helping one million entrepreneurs become successful and whole so that they can make a difference in the world. Are you one of them? If you want to experience clarity all the way to the bank(TM), get started now at http://www.brandu.com. - Visit Kim Castle's Website |
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John PowerJohn Power, founder of Biltmore Franchise Consulting, has extensive experience developing and marketing franchises and business opportunities. He has been in and around franchising for over twenty years. From 1980 through 1990 he conceptualized, organized, and developed the American Video Association. He grew AVA to 2,000 national members, before selling the company it 1990. It was later merged into another home video marketing company. From 2000 to 2005 he worked as a contract marketing and human resources consultant to several local and national companies. In 2005 Mr. Power began working as a franchise development consultant on a full-time basis. Since that time he has helped more than three dozen companies initiate and develop their franchising program. He notes that there are many companies interested in developing a franchise program, and who need his specialized assistance. Mr. Power is a “hands-on” franchise consultant. He said, “I am the ‘nuts and bolts’ person who tends to the details for my clients.” Mr. Power holds a B.S. degree with a major in Marketing. See: www.biltmorefranchise.com You may contact Mr. Power at: jpower@biltmorefranchise.co - Visit John Power's Website |
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Anne BarrAnne Barr has over 26 years experience in sales and marketing, six years as a franchisee. She has assisted over 367 business owners and purchasers to achieve their goals in career change, transition and exit strategy. She holds the designation of Certified Franchise Executive from the International Franchise Association, Certified Business Intermediary from the International Business Brokers Association and Board Certified Broker from the Texas Association of Business Brokers. Anne is active in professional organizations, networking groups and volunteers for non-profit entities. As owner/operator of four successful businesses, Anne has proven people skills and enjoys helping clients find the right "fit" in business ownership. Visit www.FranchiseOpportunitySpecialist.com for more information about me and my company. - Visit Anne Barr's Website |
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Joe DagerJoe Dager is President of Business901, a progressive coaching company providing no-nonsense direction in areas such as Lean Six Sigma Marketing and organized referral marketing. What others say: In the past 20 years, Joe and I have collaborated on many difficult issues. Joe’s ability to combine his expertise with “out of the box” thinking is unsurpassed. He has always delivered quickly, cost effectively and with ingenuity. A brilliant mind that is always a pleasure to work with.” - James R. If you want to learn more about Business901, start a conversation with us. We can be found @ Web/Blog: Business901.com Web/Blog: FundingYourNonprofit.com LinkedIn Profile Follow me on Twitter - Visit Joe Dager's Website |
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Linda RichardsonLinda Richardson is the Founder and Executive Chairwoman of Richardson, a global sales training and performance improvement company. As a recognized leader in the industry, she has won the coveted Stevie Award for Lifetime Achievement in Sales Excellence and she was identified by Training Industry, Inc. as one of the “Top 20 Most Influential Training Professionals.” Ms. Richardson is credited with the movement to Consultative Selling and is the author of ten books on selling and sales management, including Sales Coaching — Making the Great Leap from Sales Manager to Sales Coach, and Stop Telling, Start Selling. She teaches sales and management at the Wharton Graduate School of the University of Pennsylvania and the Wharton Executive Development Center. Linda is a frequent speaker at industry and client conferences, has been published extensively in industry and training journals, and has been featured in numerous publications, including The Wall Street Journal, Forbes, Nation’s Business, Selling Power, Success, and The Conference Board Magazine. Learn more about Richardson's sales training and performance improvement solutions at http://www.richardson.com web - Visit Linda Richardson's Website |
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