Probably, the most important decision you make when starting your own business is to choose the type of legal structure you'll use for your enterprise. Furthermore, it is also important when we talk about computing your taxes.
Moreover, aside that this decision has a huge effect on your tax payments, the type of your business will also affect the amount of paperwork your business has to do, your ability to earn money and the personal liability you meet.
You should choose the structure that most closely matches your company's needs and you have to make your choice wisely because each business form comes with different tax consequences.
Below are the 3 basic business structures:
Sole Proprietorship
For those who want to have business alone, this structure can be the best for you. In fact, this is the simplest structure which only involves just one individual who owns, at the same time operates the entire business is sole proprietorship.
This status automatically comes as long as you are the sole owner of your enterprise. You do not have to take any formal action to form a sole proprietorship.
Why is sole proprietorship advantageous?
* Less costly and easier to form - with this type of business structure, costs are minimal, with legal costs limited to obtaining the needed permits and license.
2. Total Control - you don't have to consult with anyone else when you need to make decisions or changes. Thus, you have complete control over your business decisions because you are the sole owner.
- Easy Tax Preparation - because there is no legal separation between you and your business, your tax reporting requirements are easy to fulfil. With sole proprietorship, you can get the lowest tax rate of all the business structures.
Disadvantages of Sole Proprietorship:
1. Unlimited personal liability - because there is no legal separation between the two parties, you can be personally liable for the liabilities and obligations of your enterprise.
- Difficulty to raise capital - because they are perceived to have lack of credibility when it comes to repayment of the business fails, banks and other lending institution are hesitant to lend to a sole proprietor.
Partnership
This structure is a type of business where there are two or more people who share ownership, liabilities and management.
Types of Partnerships
* General Partnerships - partners equally shares the profits, liability and management duties. If there's no equal distribution, the percentages assigned to every partner must be documented in the partnership agreement.
1. General Partnerships - partners equally shares the profits, liability and management duties. If there's an unequal distribution, the percentages assigned to every partner must be documented in the partnership agreement.
- Limited Partnerships - are more complex than general partnership, wherein it allows partners to have limited liability as well as limited input that depend upon each partner's investment percentage.
Corporation
Corporation
What are the advantages of corporation?
As there are increased paperwork and recordkeeping burdens associated with this business structure, you will probably need an assistance of an attorney to guide you when starting a corporation because a corporation is formed under the laws of the state in which it is registered.
Disadvantages:
A corporation is an independent entity owned by stakeholders because t is separate from its owners so it requires complying with more regulations and tax requirements. These make this structure more expensive and complex than most of other business structures.
A corporation is formed under the laws of the state in which it is registered and you will probably need an assistance of an attorney to guide you when starting a corporation. Furthermore, there are increased paperwork and recordkeeping burdens associated with this business structure.
Moreover, aside that this decision has a huge effect on your tax payments, the type of your business will also affect the amount of paperwork your business has to do, your ability to earn money and the personal liability you meet.
You should choose the structure that most closely matches your company's needs and you have to make your choice wisely because each business form comes with different tax consequences.
Below are the 3 basic business structures:
Sole Proprietorship
For those who want to have business alone, this structure can be the best for you. In fact, this is the simplest structure which only involves just one individual who owns, at the same time operates the entire business is sole proprietorship.
This status automatically comes as long as you are the sole owner of your enterprise. You do not have to take any formal action to form a sole proprietorship.
Why is sole proprietorship advantageous?
* Less costly and easier to form - with this type of business structure, costs are minimal, with legal costs limited to obtaining the needed permits and license.
2. Total Control - you don't have to consult with anyone else when you need to make decisions or changes. Thus, you have complete control over your business decisions because you are the sole owner.
- Easy Tax Preparation - because there is no legal separation between you and your business, your tax reporting requirements are easy to fulfil. With sole proprietorship, you can get the lowest tax rate of all the business structures.
Disadvantages of Sole Proprietorship:
1. Unlimited personal liability - because there is no legal separation between the two parties, you can be personally liable for the liabilities and obligations of your enterprise.
- Difficulty to raise capital - because they are perceived to have lack of credibility when it comes to repayment of the business fails, banks and other lending institution are hesitant to lend to a sole proprietor.
Partnership
This structure is a type of business where there are two or more people who share ownership, liabilities and management.
Types of Partnerships
* General Partnerships - partners equally shares the profits, liability and management duties. If there's no equal distribution, the percentages assigned to every partner must be documented in the partnership agreement.
1. General Partnerships - partners equally shares the profits, liability and management duties. If there's an unequal distribution, the percentages assigned to every partner must be documented in the partnership agreement.
- Limited Partnerships - are more complex than general partnership, wherein it allows partners to have limited liability as well as limited input that depend upon each partner's investment percentage.
Corporation
Corporation
What are the advantages of corporation?
As there are increased paperwork and recordkeeping burdens associated with this business structure, you will probably need an assistance of an attorney to guide you when starting a corporation because a corporation is formed under the laws of the state in which it is registered.
Disadvantages:
A corporation is an independent entity owned by stakeholders because t is separate from its owners so it requires complying with more regulations and tax requirements. These make this structure more expensive and complex than most of other business structures.
A corporation is formed under the laws of the state in which it is registered and you will probably need an assistance of an attorney to guide you when starting a corporation. Furthermore, there are increased paperwork and recordkeeping burdens associated with this business structure.
About the Author:
All companies need to choose the best business structure that is good for their nature and size. For more on this topic, click the link above.
No comments:
Post a Comment