Starting a small business can be an exciting time for new entrepreneurs. With so many choices needing to be made, it can all be a bit overwhelming. Whether it’s deciding what your business will look like or where you will work, you shouldn’t have to worry about setting up your business structure on your own. That’s why we help small business owners make their dream a reality!
Why is choosing the right business entity important?
Choosing the right business entity is critical because it will impact your business’s success, your personal liability, and your business tax filing status. To empower hopeful small business owners, we have compiled a guide for business owners to better understand what each business entity is and its benefits.
What is a Sole Proprietorship?
A sole proprietorship is the simplest form of business entity. This type of business is owned and operated by a single individual. The business and the owner are considered the same entity legally, which means the owner is personally liable for all business debts and obligations. On the other hand, a sole proprietorship gives the business owner complete control over the business. While you may think, “Well I am the sole owner, it’s my business. This makes the most sense!” we will go over more business entities to explain how you can benefit from not having a sole proprietorship.
What is a Partnership?
It’s common for people to start a business with a friend or colleague. If this is you, a partnership might be the right business entity for you. Within partnerships, there are three types: general, limited partnership, and limited liability partnership. In a general partnership, the partners share equal responsibility for the business’s debts and obligations. On the other hand, a limited partnership allows for general partners and limited partners, where the general partner manages the day-to-day and the limited partner invests and mostly stays silent in the business.
A limited liability partnership offers the partners the benefits of a general partnership, such as having an equal say in the business. This entity provides the protection of an LLC, so the liability falls on the business entity and not on the individuals.
What is a Limited Liability Company (LLC)?
An LLC is a popular choice for small business owners because it combines the simplicity of a sole proprietorship with the liability protection of a corporation. In an LLC, the business is considered a separate legal entity, which means the owner’s personal assets are not in jeopardy for the business’s debts and obligations.
What is a Corporation?
A corporation is a separate legal entity from its owners, which means the owners are not personally liable for the business’s debts and obligations. However, they are not as easily manageable as the entities mentioned above and are more complex to set up. The advantages of a corporation are the ability to raise capital through stock and an unlimited life, meaning the business lives on after the original owner’s life.
How do you choose the best business entity for your business?
When it comes to choosing a business entity for your new business, there is no one-size-fits-all solution. Each type of business entity has its advantages and disadvantages, and the right choice depends on several factors, including your business goals, the number of owners, and the level of personal liability you’re comfortable with.
We are happy to talk to you further on the different business entities available for your business and help you set up your entity when you’re ready.