If you have never opened your own business or are thinking about creating a business then you have come to the right spot. Creating a business is not really a simple task, The work that goes into it is a lot, but if done right doesn’t have to seem so hard. We are going to give you the short guide to picking a business structure.
When choosing your business structure, you are going to want to pick the right one that is for your company. If you should need to later on you can always switch the name.
LLC
A limited liability company or “LLC” as it is also known as, is one of the newest forms to be joined in the business structure. The LLC pros and cons are
Pros
- Limits losses and debts to company owners. Which means that your personal assets can never be touched due to debts and losses in your company
- No double taxation- If you happen to co-own your company with someone, then you will not be double taxed from the government. Making it easier for you to split those tax costs however you chose
Cons-
- Cost- Starting your LLC can be costly due to fees and high cost and filing fees, It is recommended that you know exactly out of getting an LLC or you are just throwing your money down the drain.
- Certain state laws can limit ownership- Laws from state to state are different and complex, Make sure that you know about your state laws and what your rights are before you file.
- Agreements- Your agreement must be direct and clear. We recommend seeking out a business attorney when creating your LLC.
While being an extremely popular business to file. You want to make sure that an LLC is what you want to file
Sole proprietorship
As you guessed it, yes a sole proprietorship is when you are the sole person responsible for the company.
Pros
- Flexibility- Since you are the sole owner of the company you get to run your company whoever you seem fit. Just make sure that you are fully ready for that part!
- Profits- Another huge advantage of a sole proprietorship, is that you get to keep all the profits you make at the company. Which if successful can mean a very nice paycheck for you.
- Simplicity- The requirements for this type of structure is actually very easy. It is the easiest out of the four structures. Normally all you will need is just a business license
Cons
- Business assets vs private assets- Unfortunately when you are a sole owner of a business, you personal assets could be touched due to business debts or losses.
- Equity- The downside to a sole proprietorship, is that all of your equity is dependent on your own personal resources.
Partnership
There are actually two forms of partnership. You are going to have your
- General partnership- This is a very simple form of partnership. It’s basically like two people say “hey we should form a partnership.” And the other person says “that would be great I’m in”. As strange as it sounds , yes you could actually form a partnership with someone like that. Now that biggest con for this one is that even if you did not invest a lot of money into the company, you could still be liable.
- Limited Partnership- This is a more complex and formal one. With you also needing to file a certificate of participation with your state. The advantage to your partnerships is that it is fairly easy to file.
Corporation
When filing for a corporation, you should know that it’s mainly for tax reasons. If you are planning to expand your business to many locations, then a corporation filling is the right one for you
Pro
- Personal assets- Your personal assets cannot be affected or seized. If you were to file bankruptcy on your business, your personal assets would not be touched.
- Transferring- If you need to, transferring the company is fairly easy.
Cons
- Cost- Starting a corporation is very costly. It is only suggested that you file under a corporation if you are planning to expand your company. Otherwise you should wait until you start expanding more.
We hope we have been able to help you choose a business structure to file under. We wish you much success.