So you’re taking on the world. Perhaps you’ve fled from the corporate box to stretch your arms as an entrepreneur that can change things; you’re going to be the change you want to see in the world. Maybe you’re fresh out of college and have known your entrepreneurial destiny since you discovered your true passion as a young lass. Either way, you get to be exactly what you want to be and affect your market exactly how you want to.
Easier said than done, but in order to change the world, or at least your sliver of it, a legitimate business title would aid you in getting the job done. You’ve got what your business does figured out, the next step is to pick a business structure.
Here are the four basic entity types to choose from to legitimize your business:
If simplicity is what you’re after a sole proprietorship is an excellent choice. All you have to do come tax season is report your business’ profits and losses on your personal tax record. You’ll also be likely to pay a self-employment tax on profits you make. Piece of cake, right? The only catch being that the structure is tied to your personal assets. Meaning wave goodbye to your personal property and savings if your business fails and you can’t pay up.
This entity is usually the most obvious choice when working with a partner. Though, like the sole proprietorship a partnership ties the business to the partners’ personal assets. However, if you’d like you could have a limited partnership which will lower personal liability for business debts.
As the name promisingly rings a large bell, this is an extremely common type of entity. The paperwork in mind is what potentially scares off most thinking about forming a corporation. However, paperwork included, this entity can be very much worth the trouble. With a corporation you don’t have the worry of tying your personal assets to your business. Your business is a separate entity from yourself; it has a life of its own. You also pay taxes according to what you choose to pay yourself coming from the corporation. That’s money you can utilize in growing your business. Any ideas your business is built around also becomes the property of the corporation and not the owners, making it a bit less messy be there ever a disagreement over who came up with what.
Limited Liability Company (LLC)
LLC owners have the choice of being taxed as a corporation would or the pass-through structure in which personal income includes your business’ profits and losses. However, like a corporation, your personal assets are still protected if your business fails.
Choosing an entity should not be this daunting, impossible decision. If you’ve been thinking of gaining a legitimate title to go along with your business for some time now the choice should be easy. As you’ve read the above selections one of them should have jumped out at you giving you the perfect “YES! That’s what my business needs.”