Recipe For Difficulty – Enterprise Framework
If you are thinking of starting your own business, one of the things you might want to think of is how you want the business to be structured. A sole proprietorship? A limited liability company? A corporation? Business often ends up as sole proprietorships not because that is the best structure for that particular business, but because people think that any other designation is going to require a lawyer and lots of money. This article is not meant to replace legal or tax advice. You should consult an attorney and/or an accountant for a more detailed look at your particular situation.
In a sole proprietorship there is no difference between you and the business. This means that you accept all the liability for your business. If things go wrong or someone sues you, your personal assets on the line as well as your business assets. You are also responsible for all the debt incurred by the business.
You pay taxes on the profit from the business as income. You are certainly not alone. There are more than 19 millions businesses in the U.S. functioning as sole proprietorships.
A limited liability company (or LLC) is a hybrid of a sole proprietorship and a corporation. With an LLC, you have limited personal liability. There are some differences in how income can be handled as well. There is more flexibility with and LLC than with a corporation so it is a good alterative for business with one owner. Setting up and LLC is not as complicated as you might think. You can even set it up yourself with many of the online legal services available (such as Legalzoom or The Company Corporation). Again, be sure you are following all the legal requirements and consult a lawyer if you have concerns.
A corporation is a totally separate legal entity.
It is not owned by any one person, but rather by stockholders. Forming a corporation is not necessarily a complicated legal process, but complying with all the regulations can be much more complex. Many people think that corporations are always traded on the stock exchange. However, many corporations are closely held, privately held, or close corporations, which means that the corporation is managed by a small group of business people or companies. Both types of corporations can be very large. Corporations are often formed in companies where there are investors.
Deciding which structure best fits your business is an important decision. Research the various requirements and taxations effects of any structure you are considering to avoid unpleasant surprises. As always, consult a lawyer and/or accountant if you have questions.