One of the first decisions that you will have to make as a business owner is what business structure you want to use. Depending on your situation and financial funding, you should consult with an accountant and attorney to help you select the form of ownership that is right for you. If you do not have enough funding, you will need to do a lot more thorough research to reduce the chance for error.
We’re here at Webhostingreport.net will try to give you some basic understanding of what options you have and which one might be right for you. Once you decide which option eventually is the best for you, you are able to intensify your research and to build a case.
The majority of small businesses starts out as a sole proprietor. These businesses are owned by one person, usually the individual who has day-to-day responsibility for running this business. Sole proprietors own the complete assets of the business – including all the profits generated by the business. The owner (sole proprietor) also assumes complete responsibility for any of its liabilities or debts. In the eyes of the law and the public, the owner (Sole Proprietor) is one in the same with the business entity. Unlike a LLC or a corporation, you don’t have to file any special forms or pay any fees to start working as a sole proprietor. All you have to do is declare your business to be a sole proprietorship when you complete the general registration requirements that apply to all new businesses in your state/local area.
Advantages of a Sole Proprietorship
– Easy to organize
– Owner has complete control
– Owner gets all the income
Disadvantages of a Sole Proprietorship
– Owner is liable for every kind of debt from the business
– Benefits are not business deductions
– Business and personal assets are at risk
A corporation is considered by law to be a unique entity, completely separate and apart from those who own it. A corporation can be taxed; it can be sued; it can enter into contractual agreements – all by itself and therefore protecting the personal assets of the owner(s). if the corporation gets sued and found liable, the personal assets of the owner(s) cannot be touched under normal circumstances. The owners of a corporation are its shareholders. The corporation has a life of its own and does not end to exist when the ownership changes. To form a corporation, you must file the “Article of Incorporation” with your state government or with the state government where you want to have your business registered.
Advantages of a Corporation
– Shareholders have only limited liability
– Can raise funds through the sale of shares/stock
– Your business is very profitable, so that you can save a significant amount of income tax by keeping the profits in the corporation each year. This results in higher value per share.
Disadvantages of a Corporation
– To incorporate requires more time and money than starting a sole proprietorship
– Running a corporation requires certain organizational duties that need to be met (Shareholder meeting, reports, create corporate bylaws, must issue stock certificates)
– Actual taxation might be higher
Limited Liability Company (LLC)
A Limited Liability Company is designed to provide the limited liability features of a corporation and the tax efficiencies and operational flexibility of a sole proprietorship and partnership. The actual formation is a little more complex and more formal than that of a sole proprietorship and/or partnership. A LLC does have members but can also be formed by just one person (=1 member). Basically – a LLC receives the corporation’s protection from personal liability for business debts and the tax structure of partnerships and sole proprietorships.
Advantages of a Limited Liability Company (LLC)
– Members have limited liability
– Actual taxation might be more beneficial for the members
– Business form looks more professional than a sole proprietorship in many cases
– A LLC only needs one member
Disadvantages of a Limited Liability Company (LLC)
– A LLC cannot seek funding by offering shares to shareholders
– The liability protection can be removed by a judge if it is obvious that the members did not run the business as a LLC but as a partnership / sole proprietorship
– Less laws that govern the LLC. This could be a problem in complicated business situations
There are 2 additional business forms that we do not cover this time. The partnership and the S-Corporation. We do not consider the partnership a good business form as each partner can be held liable for the debt created by the other partner. The S-Corporation is eventually to complicated for most situations and requires more guidance by a lawyer and accountant.