The structures discussed here apply only to for-profit businesses. If you`ve done some research and still aren`t sure which business structure is right for you, Friedman recommends consulting a business law specialist. The most common types of businesses include sole proprietorships, partnerships, limited liability companies, corporations and cooperatives. Here you will find more information about each type of legal structure. In addition to being a sole proprietorship, the partnership is one of the most common types of business structures. Examples of successful partnerships include: Mark Kalish is co-owner and vice president of EnviroTech Coating Systems Inc. in Eau Claire, Wisconsin, a company that applies powder coating to items ranging from motorcycles to musical instruments through an electrostatic process. Kalish has also been involved in a number of other start-ups, both as owners and in various leadership positions. The answer to the question “Which structure makes the most sense?” depends on the individual situation of each entrepreneur.
“Every situation I faced was different,” he says. “You can`t just assume that one form is better than another.” A sole proprietorship is a business structure in which “a person owns an unincorporated business himself,” according to the IRS. However, if you own a sole proprietorship, you are not limited to choosing a sole proprietorship as your business structure. For example, you can choose to be treated as an LLC by the IRS. Starting a sole proprietorship may have different filing requirements in some states than in others. In California, for example, you don`t need to file organizational documents with the state for this corporate structure. However, the structure of the company has a number of disadvantages. One of the most important is the increase in costs. Companies are incorporated under the laws of each state with their own bylaws. You`ll probably need the help of a lawyer to guide you through the maze.
Because a business must follow more complex rules and regulations than a partnership or sole proprietorship, it requires more accounting and tax preparation services. A sole proprietorship is the most common type of business structure. According to the IRS definition, a sole proprietor is “someone who owns an unincorporated business on his own.” The decisive advantage of a sole proprietorship lies in its simplicity. Here, there is no distinction between the business and the person who owns it – meaning that the owner is entitled to all profits. However, it also means that the sole proprietor is responsible for all debts, losses, and liabilities of the business. This means that creditors or applicants may have access to the business owner`s personal accounts and assets if business accounts cannot cover the debt. Examples of sole proprietorships include freelance writers, freelance consultants, tutors, and caterers. Eligibility for a business credit card may be easier if you have a strong personal credit score.
Again, though, you`ll likely need to sign a personal guarantee. This is a legally binding agreement that allows the bank to hold you personally liable if you default on the account. 1. Legal Liability. To what extent should the owner be relieved of any legal liability? That was a consideration for EnviroTech, Kalish says. He and Berthold have had a high investment in equipment, and the contracts they are working on are substantial. They did not want to accept personal responsibility for possible losses related to the business. “You need to determine whether your company lends itself to potential liability and, if so, whether you can personally assume the risk of that liability,” Kalish says. “If you can`t, a sole proprietorship or partnership may not be the best solution. Incorporation: Corporations are more complex entities to create, have more legal and accounting requirements, and are more complex to operate than sole proprietorships, partnerships, or LLCs.
One of the main disadvantages of a company is the high level of governance and oversight by the board of directors. Often, this prolongs decision-making when multiple shareholders or investors are involved. Well, a limited liability company (LLC) is where things get a little risky. The IRS states that an LLC is a “corporate structure authorized by state law.” This means that it is formed under state law and regulations for LLCs vary from state to state. Depending on the choices made by the LLC and its characteristics, the IRS treats an LLC either as a corporation, a partnership, or as part of the LLC owner`s tax return (i.e., as an “unconsidered entity” with many characteristics of a sole proprietorship). Companies are a company or group of persons authorized to act as a single legal entity. This means that the company is considered separate from its owners (i.e. there is no personal liability here). However, a company is entitled to many rights that individuals have, which is why it is sometimes called a “legal entity”. For example, a company can sue or be sued, enter into contracts and has the right to freedom of expression.