Choose the Structure
A determinate of business success is created, in part, by choosing the correct legal structure. Some of the advantages of choosing the right structure are:
The three basic legal structures are:
1. Sole Proprietorships
You alone own it and are 100% responsible for its debts and liabilities. All earnings are taxed as your personal income. This is the most popular small business structure because it’s simple and straightforward.
Two or more owners agree to share profits and losses according to their share of the firm. In a general partnership all partners are liable for debts; in a limited partnership one or more partners limit their personal liability by being passive investors and not making day-to-day business decisions.
To determine if these structures fit you, consider the following questions. If you answer YES to most the following questions, then a sole proprietorship or partnership is right for you:
The company earns revenue, incurs losses and pays taxes separately from its owners. Companies often pay tax at a lower rate than individuals. Owner’s liability is limited to what he/she invests in the company, and they have options as to when and how they take money out of the company.
To determine if a corporation is right for you consider the following questions. If you answer YES to most of the following questions, then a corporation is right for you:
The legal form of your business will affect everything from the administrative costs of setting up and operating your business through to your tax planning. It’s a decision you need to make even before you choose your business name. We highly encourage you to speak with a lawyer or accountant before making this important decision.
However, that being said, choosing a form of business ownership does not have to be fixed in stone. You can alter your legal structure as your circumstances change, for example, some small businesses start as home-based sole proprietorships that grow to downtown corporations at a later date.
The next section outlines how to register your business once you’ve decided on a structure.