Similar to a sole proprietorship, but with multiple owners (a sole proprietorship cannot have more than one owner). Like a sole proprietorship, a partnership is not a separate legal entity from its owners. Key Finding: The five types of business structures are sole proprietorships, partnerships, limited liability companies, corporations and cooperatives. Choosing the right structure largely depends on your type of business. As your business grows, you can modify structures to meet its needs. The L.L.C. is an extremely popular structure. Because there are many similarities between LLC and S companies, the following list shows some of the differences: The legal structure, also known as the business ownership structure, determines the tax return form you need to file, but more importantly, it determines how much tax you have to pay and determines your risk exposure. Choosing the right legal form for your business starts with analyzing your company`s goals and considering local, state, and federal laws. By defining your goals, you can choose the legal structure that best fits your company`s culture. As your business grows, you can change your legal structure to meet the new needs of your business. Bob Smith established his company as a structure with significant administrative costs.
Installation alone costs Bob several thousand dollars, and Bob periodically has to hire an accountant to fill out paperwork and forms for several government agencies. Overall, these administrative procedures take a lot of time and money. For more information, see the Select an Enterprise Structure in Small Business Administration Web page. Keep in mind that setting up your business structure isn`t the most exciting part of starting your business, but it can be a burden if you don`t choose the best structure. Take the time to go through the checklist above and you`ll protect yourself from being unpleasantly surprised in the future. Taxes: The business structure you choose will also affect your tax status. Sole proprietorships, partnerships and LLCs are «intermediate» tax units, meaning that corporate income taxes and losses are «passed on» to the owners of their personal income taxes. However, these owners must levy taxes on all net profits of their business, even if they do not withdraw money from the business in the tax year. A legal structure is an organizational framework for the operation of a business unit. Also known as a business structure, business form, or business ownership structure, the right legal structure depends on the size and nature of your business and business goals.
«States have different requirements for different business structures,» Friedman said. «Depending on where you settle, there may also be different requirements at the municipal level. When choosing your structure, you understand the state and industry you are in. It`s not a one-size-fits-all solution, and businesses may not know what applies to them. «As with all other business structures, there are downsides to the LLC. Because not all states have adopted a limited liability company, if you form an LLC in one state that allows LLCs and you do business in another state, which you do not, your LLC may not be able to provide limited liability protection against creditors in that state. This is a serious risk that you will not face if your business is integrated. 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.
Headquartered in St. Louis, Missouri, Anheuser-Busch is a wholly owned subsidiary of Anheuser-Busch InBev, a multinational brewery based in Leuven, Belgium. A limited liability company (LLC) is a hybrid structure that allows owners, partners or shareholders to limit their personal liabilities while enjoying the tax and flexibility benefits of a partnership. Under an LLC, members are protected from personal liability for the company`s debts unless it can be proven that they acted illegally, unethically, or irresponsibly in carrying out the corporation`s business. Unlike pass-through structures, companies are considered as separate control units. These entrepreneurs only pay taxes on the profits they actually make from the business in the form of salaries, dividends or bonuses. In addition, the corporation pays taxes at a lower tax rate than some individuals. Where is your business going and what kind of legal form allows for the growth you envision? Contact your business plan to review your goals and see which structure best fits those goals. Your business should support the opportunity for growth and change, not hold it back from its potential.
In addition to being a sole proprietorship, the partnership is one of the most common types of business structures. Examples of successful partnerships include: Who is responsible for the company`s debts and liabilities? If you drive your car in another car, you are responsible for the damage. Who is liable for any damages and debts to your business? It depends on the type of structure. Some structures limit your liability to your investment, while others make you and your personal property liable for damages and debts to the business. As their businesses grow, many sole proprietors restructure their operations as LLCs that offer the pass-through tax benefit and limited liability protection. Tip: Important factors to consider before liability, tax structure and industry regulations. By creating a list of specific attributes about your company and its founders, you can choose the business structure that`s right for you. This entity is owned by two or more persons. There are two types: a partnership, where everyone is divided equally; and a limited partnership, where a single partner has control of its operation, while the other person (or persons) contributes to the profits and receives a portion of them.
Partnerships have a dual status of sole proprietorship or limited liability company (LLP), depending on the financing and liability structure of the company. No business owner wants to be held personally liable for the company`s debts or pay out of pocket for a judgment against the organization. How you structure your business at the beginning has a significant impact on your personal liability burden. There are a number of business units to help protect you, such as forming a company, limited liability company (LLC), limited liability company (LLP), or limited partnership (LP). Consider avoiding the sole proprietorship model if you want maximum asset protection. Investment needs: If your business depends on investors, a business may be the right business structure. Corporate structuring allows a company to sell ownership shares through stock offerings. Existing business structures cannot offer inventory. Three key themes distinguish the different types of business structures. Understanding these fundamental questions first can help you understand the pros and cons of each type of structure. A corporation is a separate legal entity organized in accordance with state and federal laws.
The property is divided into shares. Business activity is governed by a charter that defines the powers and limits of each company. Companies that operate in more than one state must comply with federal interstate trade laws and state laws, which can vary widely. You are starting a business and want to limit your personal liability for the company`s debts as well as the taxes you have to pay.