Important to Develop a Business plan

Business Structure

Designing a killer website, prototyping your product, talking your way to your first big order — these parts of starting your business likely stir your entrepreneurial passions.The business structure of your new enterprise? Not so exciting.

But hold on. Careful consideration of which structure is right for you is crucial because it will have implications for how the IRS taxes your business profits. It’ll also determine whether your personal property is protected when others demand money from your business.

Business structure options

Business structures are largely creations of state law, so there are minor variations on the details from state to state. Here are five common models

Sole proprietorship

Forming a single proprietorship offers you total control over your firm and is an uncomplicated process.If you engage in commercial operations but do not register as any other type of firm, you are automatically regarded as a sole proprietorship.

A sole proprietorship doesn’t create a distinct company entity. This means your business assets and liabilities are not separate from your personal assets and liabilities. You can be held personally liable for the debts and obligations of the business. Sole proprietors are still able to get a trade name. It can also be hard to raise money because you can’t sell stock, and banks are hesitant to lend to sole proprietorships.

Partnership

The most straightforward form of joint business ownership for two or more individuals is a partnership.Limited partnerships (LP) and limited liability partnerships (LLP) are the two most prevalent forms of partnerships.

All other partners in limited partnerships have limited responsibility, whereas the sole general partner has unlimited liability. As stated in a partnership agreement, partners who have limited liability also typically have restricted authority over the business. In addition to paying self-employment taxes, the general partner, or the partner without limited responsibility, receives profits that are carried through to personal tax returns.

Similar to limited partnerships, limited liability partnerships provide each owner limited responsibility. Each member in an LLP is shielded from obligations owed to the partnership and is released from liability for the conduct of other partners.

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