There are several ways in which you can organize your business. As a new business owner you need to choose the right business structure for yourself and get protection from general legal liabilities and aim to secure excellent tax breaks from the entity of business that you are going to choose.
Here are some of the most common ways to organize your business:
Sole Proprietorships: This kind of business is owned by one person and is not registered with the state. Nothing special needs to be done and no legal paperwork is necessary to setup a sole proprietorship firm. Legally, the owner of a sole proprietorship firm is completely responsible for its functioning, i.e. he is responsible for all kind of losses incurred and/or legal issues that may crop up.
Partnerships: Partnerships are businesses that have more than one owner. They are similar to Sole Proprietorship and do not need to be registered by the state. The partnerships owners are liable to pay taxes on only their share of incomes and are each personally responsible for their proportional amounts of business debts and claims.
Sole Proprietorships and partnerships make good sense in small businesses where a comparatively less amount of money is involved.
Limited Partnerships – These are a lot more complicated and costlier to run and are not in tune with the needs of the small business owner. One person who in turn solicits investments from other owners called limited partners owns what is called, a Limited Partnership. The general partner is in charge of all operations and personally liable for losses and legal affairs.
Limited Liability Company – Operating an LLC is a lot more complicated and costly, but does the trick for many mid sized businesses. In LLCs’ the personal liability of the owner for business debts and court judgments is limited. They are different form all other types of businesses in a way that they are independent as a legal and tax enterprise from the people who own and manage it. This means that the corporation pays its taxes itself.
LLCs’ are great for owners who have a good chance of being sued by customers or getting into large debts or if they have huge personal assets, which they need to protect.
Non Profit Corporations – These corporations are specifically formed for educational, religious, charitable or scientific purposes. These institutions raise funds from private or public donations and are generally exempted from tax payments in lieu of their non-money making nature.
Cooperatives – Cooperatives are businesses that are formed and operated democratically by all its members. Most states have strict laws that deal with the setting up and running of cooperatives and proper paperwork must be done in order to have your cooperative institution formally recognized by the state. You can contact your State’s Office in order to procure additional information.
Choosing the right kind of business structure is very important and may have a make or break effect on your business.