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.