When creating a business, the form of ownership it takes is quite important. Also, the structure your business takes can have an impact on your business. There is a need to ensure you align the objectives of your business and understand the advantages and disadvantages of each form.You should note that the structure of your business will determine how it is taxed, operational costs, formation costs, and legal liability.
The major types of business formations are LLC, corporation, sole proprietorship, and partnership.
This is considered to be the simplest form of business. Also, it is the most common. This type of business is run by an individual and its existence depends on the decisions made by the owner. The business comes to an end when the owner dies or decides to close it. This form of business has many advantages to offer. For instance, as a business owner you get to enjoy all profits, there is minimal regulation, and owners have flexibility regarding how the business is run. There are minimal requirements when it comes to starting a business. However, you are liable when it comes to settling business debts.
Partnerships can be classified as limited and general. For the general partnerships, owners are required to invest their labor, property, and money into the business. That means the business like a sole proprietorship, the owners are liable for any debt the business has. A general partnership does not need a written agreement. For instance, you can find businesses that are run by a few people with a verbal agreement. There are also limited partnerships, where there is a formal agreement among the partners.
A corporation is considered to be a separate entity from the owners. You can think of a corporation as a legal person. Therefore, the profits a corporation makes are taxed. Also, the income that shareholders get is equally taxed. The good thing about this type of business is that you are not liable for losses or business debts. Thus, your personal property cannot be seized to settle business debts.
Limited Liability Company
The limited liability company or LLC means its owners are not liable for business debts. This type of business combines the advantages of corporations and partnerships. The good thing about an LLC is that profits are not double-taxed as the case with a corporation.