Starting a business is exciting, terrifying and—let’s be honest— super confusing!!
Choosing a business entity is one of those important confusing parts of it. However, you reading this article about different legal structures is a sign that you’re taking your business seriously and focusing on making it a success. Kudos!
This simple comprehensive guide gives you an overview and a better understanding of each business structure. REMEMBER, there is no single “best choice”! Whatever decision you make will impact on how much you pay in taxes, the amount of paperwork you’re required to do, the personal liability you face and your ability to raise money. So, let’s dive right in—
The Most Common Business Entities
Simple. It’s your business and yours alone. You’re letting the government know that you take full responsibility for the company—running the business, profits, and liability for all losses. It’s the most the most common small business structure.
If you’re no longer alone, then you have a partnership. This entity is when two or more individuals share ownership of this new business. Everyone involved share running the business, profits, and losses. BUT WAIT! There’s three different types of partnership.
General Partnership: All profits, liabilities, and duties are distributed evenly.
Limited Partnership: Often used for partners who serve an investor role only, and have limited input into the actual running of the business.
Joint Venture: It functions the same as a general partnership, but for a confined span of time, such as the completion of a one-time project.
Limited Liability Company (LLC)
Allows for the flexibility of a partnership or sole proprietorship, but limits the liability of those involved. Basically, if your company fails, loses money or subjected to a lawsuit, your personal assets will not be affected.
The MOST complex business entity. If your working by yourself or even with a few people, don’t do it. This is meant for businesses that are larger and more established. We’re talking about 50+ employees, plan on selling stock, outside investors, or some combination of these traits. BUT WAIT! Like the partnership, this also has three different types. C corp, S corp & B corporation. We’ll save you the explanation since this site is mainly for small business.