I recently saw a news story about the increase in entrepreneurship. According to the article, last year, there was the start of 5 million new businesses. This is a 55% increase over 22019. The cause of this huge jump is the Great Resignation. People are simply quitting their jobs to start a new business. This is exciting. However, before starting a business, make sure you pick the right business structure for you. Here are some options.
As the name suggests, this is a business structure that you and only you own. As the chief cook and bottle washer, you make all the decisions. However, you may also be responsible, financially, and legally, if something goes wrong. Regardless of those risks, setting up a sole proprietorship is simple and straightforward.
When a business is owned by two or more people, structuring the company as a partnership may be a good option. The partnership structure offers some flexibility regarding management. For example, with a general partnership, all partners have equal rights. A limited partnership can also be an option. In this scenario, all partners are not the same. One partner controls the business. The other partners can share in the profits but can also be on the hook for liabilities. Also, the limited partners are often asked to make financial contributions to the business. Partnerships may have some tax advantages as well.
Limited Liability Company or LLC
An LLC can have one, two, or more business owners– known as Members. LLCs are easy and cost-effective to form. The great thing about LLCs is that the Members get the tax benefits of a partnership and protection from personal liabilities. Often, this is the way to go for small, start-up businesses.
A corporation structure is the most complex of the entity choices. Simply, a corporation is wholly separated from its owners. Ownership is granted through the issuance of stock. Because there are many different types of corporations (S corps, C corps, B corps, Nonprofit corps), it is essential to understand the tax and legal implications. And due to the complexity, this discussion needs to occur before forming the entity.
Starting a business is daunting, but we can help you. So, call us if you are starting a business. We will help you determine the right business structure for you.