Many common legal structures are available for you to set your business up under. The one that you end up choosing depends on the kind of business you want to set up, other individuals or parties involved in the business with you, your personal preferences among other numerous factors. Below is an overview of the options you can choose from:
This is the most popular type of business structure especially for small businesses that are just getting started. This implies that one individual owns and is responsible for the business. They have the right to make every decision, but they also shoulder all the financial responsibilities. The profits or losses generated from the business are reported on the sole proprietor’s personal taxes.
This type of legal structure is so similar to a sole proprietorship, except that there is the presence of more than individual involved in the ownership and operations of the business. The business is still connected to you but also to your business partners as well. This implies that you are all involved in the management and financial responsibilities of the business.
Corporations (LTD or INC)
Corporations are entities that are created and do businesses on their own, separate from any individual on a personal level. This implies that the financial condition of the business does not roll over to the individual who owns the business. Though this may look like the appropriate option to avoid personal liability if anything happens to the business, it can be so complex and costly to start and maintain. It is not advisable for small business owners to utilize this option because many of them cannot afford the setup fees or the maintenance of the records that are required.
Limited liability company/corporation (LLC)
This type of business structure is fairly new and very common because it offers the benefits of a corporation and it does not entail a lot of hassles. Unlike a limited liability partnership, you can start this type company with only one individual. It offers most of the financial protection of a corporation, but it does not need that much extensive measures when it comes to upkeep.
Limited liability partnership (LLP)
This is a different kind of partnership, but it also offers some of the financial protection of a corporation. Unlike an LLC business structure, you are required to have at least two partners. However, it is simpler to keep and maintain your structure than an LLC. This type of business structure is much popular in the United Kingdom, while LLCs are more common in the United States.