Once you’ve decided to go into business you have some
decisions to make. The first is what
your legal structure will be. There are
several legal business structures, and of course a great many things to
consider under each category, including personal liability, taxation, working
with family or friends, agreements and bylaws, and a much more.
The following are very basic definitions of each type of business;
The information is not meant to be all-inclusive. We urge you to do your homework and seek
legal advice if necessary to make sure your business starts off on the right
foundation.
Sole Proprietorships
– Here you are on your own. You are the
only owner of the business. Most
freelance photographers, writers, handymen, etc. fall into this category, but
many other businesses can be sole proprietorships as well. This is the simplest business to run from a
legal standpoint. However one major
consideration of this business structure is that legally you as the owner are
not separated from the business. In
other words, you can be personally responsible/liable for any business debt.
Partnerships – A
partnership is formed when two or more owners form a business and do not choose
to become a corporation or LLC, or limited partnership. Like sole proprietorships, partners are also
personally indistinguishable from the business itself, and therefore can be
liable for business debt, unless they also form an LLC or limited partnership.
Limited Liability
Companies (LLCs) - Limited Liability Companies are a good option for those
who want to have a legitimate business without the worries of personal
liability for business debt, but who don’t want to go through all of the
rigmarole of forming a corporation. LLCs
can offer the best of both worlds, combining the taxation structure of sole
proprietorships and partnerships with the protection of a corporation.
Corporations – A
corporation can be any size, from a single owner to a huge conglomerate. The distinguishing feature is that is a
formal and separate legal entity from the business owners, and it must follow
certain tax rules. Corporation owners
are called shareholders, and they can be private or publicly traded (that’s an
article for another day).
When deciding on the appropriate structure for your
business, research carefully to choose the best one for your situation.
