Here are some important factors to consider when choosing your company`s legal structure. You should also plan to consult your CPA. As a sole proprietorship, the company is owned and operated by one person – you! You don`t have partners to consult with or boards to report to. The law recognizes you and the company as one man. The company is you; They are the ones who are the business. And it is this single entity status that is responsible for the advantages of creating as a sole proprietor and also for the disadvantages. Although small businesses can be LLCs, some large companies choose this legal structure. An example of LLC is Anheuser-Busch Companies, one of the leading companies in the U.S. brewing industry. Anheuser-Busch, headquartered in St. Petersburg. Louis, Missouri, is a wholly owned subsidiary of Anheuser-Busch InBev, a multinational brewing company based in Leuven, Belgium.
If more than one person owns the business, you can eliminate optional sole proprietorships. If many people own the business, the Form C Corporation is often the choice because it has an unlimited lifespan and free transferability of interests. If you intend to have a lot of employees, you can also use pension plans and stock option plans with C Corporation. To intelligently choose the legal structure of your business, you need to know the alternatives you can choose from. A business can be structured in different ways; However, the law classifies companies in such a way that most fall into one of three legal forms. The two keys to success in almost all entrepreneurial ventures are willingness and adaptability. If you`re brave enough to start a business based on your own unique vision, there are a lot of challenges and issues to consider. But what shouldn`t get lost in the ether is choosing the right type of business unit for your business. The structure of your legal entity is both the foundation and the framework that prepares you to achieve your business goals in the future. There are three basic forms of business. A sole proprietorship is a business that is owned by a single person. From a legal point of view, the company and its owner are considered as one and the same.
On the plus side, this means that all profits are owned by the owner (after tax, of course). However, on the negative side, the owner is personally responsible for the losses and debts of the business. This poses a huge risk. For example, if a sole proprietor is on the losing side in a major lawsuit, the owner may find that their personal property is forfeited. Most sole proprietorships are small and many have no employees. In most cities, for example, there are a number of repairers, plumbers, and independent electricians who work alone on home repair work. In addition, many sole proprietors operate their business from home to avoid the costs associated with running an office. TYPES OF BUSINESS UNITS Sole proprietorships The simplest and by far the most common form of U.S.
business entity is the sole proprietorship. Apart from opening and filing a certificate for the business name under which you will operate, there are no other formal or legal requirements, so there are no associated costs. It is also a tax-advantaged form of ownership because all income and expenses are included on your personal income tax return. Thus, business losses can be used to offset income from independent sources. The downside is that the business owner is personally liable for debts, judgments, or other responsibilities of the business. However, in some cases, a personal liability insurance policy may offer some protection. It is the simplest form of business unit. In a sole proprietorship, a person is responsible for all profits and debts of a business. There are four main areas of strategy: determining the target customer group, business model, position and objectives. These are described briefly and in more detail below in the sections on these topics.
Given the choice between starting an LLC or a business, many small business owners will generally be in a better position to go the LLC route. For one, if your business has multiple owners, the LLC may be more flexible than a corporation in how you can divide profits and management tasks. Also, forming and maintaining an LLC can be a bit less complicated and expensive than a business. But there may be times when a business is more beneficial. For example, since a company – unlike other types of business units – issues share certificates to its owners, a company can be an ideal vehicle if you want to attract outside investors or reward loyal employees with stock options. In addition to the legal registration of your business entity, you may need certain licenses and permits to operate. Depending on the type of business and its activities, it may be necessary to obtain a license at the local, state, and federal levels. GL: You don`t necessarily have to repeat your contract for services. However, due to some of the nuances mentioned in the previous question, caution would dictate that you have your existing LLC operating agreement reviewed by a lawyer to determine if any changes are necessary. CI: Should choosing a legal structure be one of the first things a startup does? With nearly three-quarters of all businesses operating as sole proprietorships, this business structure is by far the most popular of all structures.
In fact, many businesses that are now partnerships and corporations started as sole proprietorships and changed when it became advantageous to do so. Each business structure you want to look at has its pros and cons. There is no right or wrong structure. The optimal choice depends solely on your personal situation. Read each section carefully. Next, decide which structure best fits your business needs. In many ways, the corporate structure of the sole proprietorship is very similar. For example, there is unlimited liability for partners and a limited life of the company. However, where it differs is that you can share the work, financial pressure, decision-making, and anything else that comes with the company with a trusted colleague. If you have chosen your partners well, you can expect synergy effects. This business builder provides you with the information you need to determine the best business structure for you. The final choice of a legal form requires consideration of these factors and trade-offs between the advantages and disadvantages of each form.
No choice will be perfect.