Starting a business requires knowledge of different business structures. If you have the full grasp, you can choose the right one for your startup and small business. Note that your selected entity will significantly affect your operations and finances as your business starts running. This is why the research will help you in decision-making. But you don’t have to go too far as we present to you the various types of business entities and what is suitable for small businesses like you.
There are four basic business structures that you can choose from. However, you need to consider a few factors like management style, taxation, state filing, and formalities before deciding. Take a look at the following business entities.
Among the four types, this is the easiest way to start your small business. Selecting this structure will give you the chance to manipulate your whole business alone. You are responsible for its operation and some legal forms you need to file for state agencies.
Moreover, it will boil down to you as a personal tax, and note that this type of business structure has unlimited liability. This means that your assets can be used once your business needs money or any property to solve its problem. Your customers or clients can also go after you if you owe them something or any legal cases.
This type of business structure can be composed of two or more members who share responsibilities, finances, skills, labor, and property to run the company. If you choose partnership, you can get greater capital and resources for ideas, decision making, creativity, and support from your members. However, it also has unlimited liability, just like a sole proprietorship, and has divided authority among the business partners.
A corporation is a business entity that runs under your state’s law. Your chosen name and corporate activity are also restricted. It has stockholders, which has liability protection. Likewise, these stockholders can enjoy tax-free benefits like health insurance. However, forming a corporation is expensive and takes a lot of processes. It also has double taxation. One is for the profits, and the other one lies on the dividends of stockholders.
A Limited Liability Company (LLC) is the combination of corporation and partnership. It has liability protection, whereas your personal assets are separated from your business activities. Likewise, it offers flexibility in operation.
Forming an LLC will require you to file a Certificate of Formation to the secretary of your state. There is a filing fee, but it is affordable for business owners. Also, take note that fees vary from one state to another. The LLC cost in Washington state, for example, is $180 when filing by mail. You might also want to check if your state will allow you to add members to your LLC. Some states restrict their LLC to one member only, which has the benefits of sole proprietorship but enjoys liability protection.
Being the safest and flexible type of business structure, LLC is ideal for startups and small businesses. This type can save your personal assets in the future while running your own business without worries of being liable. However, make sure that you do not take unlawful acts because this protection will not save you from due process.
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