Several people have asked me recently about
the best way to set up their businesses.
Since how you structure, or sometimes
restructure, your business influences nearly
every aspect of operations, you should either
hire a lawyer with experience in the field or
contact one of the Small Business Development
Centers or the Small Business Administration
office in your area for expert advice. In the
meantime, we will give you an overview of the
five ways from which you can choose so that
you will have some foundation for discussing
your specific needs with one of the sources
we have mentioned.
SOLE PROPRIETOR...this is the most
basic form of doing business. As one tax
analyst puts it "You keep all the profits and
accept the entire risk of loss,". It is
usually best for very small businesses.
GENERAL PARTNERSHIP...this is
obviously when you decide not to go it alone
but to bring in partners. It is important to
get all details of such a Partnership in
writing to avoid future misunderstandings.
C CORPORATION...this choice creates an
entity that is separate and distinct from you
as an individual. Special laws and taxes
apply to any corporation. There are many
formalities to meet with a C Corporation and
tax consequences may leave less money in your
pocket so this is usually the choice only of
businesses that are growing large or who want
to raise money through the sale of stock.
SUBCHAPTER-S CORPORATION...this is a
popular structure because it combines
corporate liability protection with the tax
aspects of a partnership. However, there are
restrictions as to who may participate which
can be problematic when raising capital.
LIMITED LIABILITY COMPANY...a limited
liability company (LLC) has the limited
liability of a corporation but the
flexibility and tax status of a partnership.
Most states also offer the limited liability
partnership structure (LLP)
Before choosing, you need also to consider
how complicated your choice will be to create
and operate, tax issues, whether any of your
personal assets would be at risk if the
company were found liable for a problem, what
happens if you want to sell or become
disabled or die, etc. That's why it is
important to get expert advice for the state
in which you plan to work.
