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Your Business Structure

biz_legalstructureNow that you've decided to operate your own business, you need to figure out the type of legal structure your business will operate under. With the goal of helping you find the right legal structure for your business, we're going to go over the four most common here: sole proprietorship, partnership, limited liability corporation, and corporation.

But, before we get into the details of each structure, let's talk a bit about what factors will determine what structure you choose. Here are a few things you should take into consideration when determining your business structure:
- The type of business you are starting.
- Your budget.
- How you are planning to finance your business.
- Personal liability issues.
- How many owners there are involved with the business.
- Your long-term goals regarding the future of your business.
- Your family situation.

Once you've looked at the needs of your business and have determined the type of structure you think will work best, always get the advice of an accountant or lawyer who has experience with business structures. There's a lot to consider, and the choices can sometimes be confusing!

Sole Proprietorship

If your business is a home business, sole proprietorship is the most common, not to mention the easiest, structure used. Basically, a sole proprietor business structure means that your business and your personal affairs are dealt with as one entity. Things like your tax return, personal liability, and control of revenue and profits are merged under one umbrella. Caution! This doesn't mean that your business finances and your personal finances shouldn't be separated. Indeed, they should be for both record-keeping and tax purposes.

What are the advantages to a sole proprietorship? In a nutshell, a sole proprietorship is so easy and inexpensive to start up that you can decide on your business one day, and have it open the next. There are few legal forms and government regulations to deal with, and you have complete control over any revenues or profits the business generates.

What are the cons? Well, the biggest disadvantage is that if anything goes wrong on the business side, you are personally liable. This means you are putting your personal assets on the line. If you need money from a bank or other source they are hard to come by if you are a sole proprietorship, and a sole proprietorship can also be hard to sell for more than equipment and inventory value.


A partnership is a low-cost structure that allows more than one person to open a business. Like a sole proprietorship, business profits are treated as taxable personable income and split among those involved.

Advantages to the partnership include the fact that a group of people to get a business up and running with very little money and hassle. All financial obligations are split among several people. A partnership also allows for each person involved to bring certain talents to the table, which benefits the business as a whole. Bookkeeping and record keeping requirements are similar to those of sole proprietorship, and there are no rules regarding how many people can form a partnership. Also, if money is going to be borrowed, more people usually have more borrowing power than one person. Partnerships can be a great way to go if family members want to work together to build a business.

The biggest disadvantage to partnerships is that all partners are personally liable for the actions of the others involved in the business. A partnership doesn't offer any legal protection because the business is not a separate legal entity. Liability can also extend to family members who own joint property with those involved in the business.


A corporation is a separate legal entity from the owners of the business. This means the business pays taxes, assumes debt, can sue, can be sued, and must pay taxes on its income before paying dividends to the owners or shareholders. The finances of the business are completely separate from the owners' personal finances.

The biggest pro to having a corporation is that the owners and shareholders are no longer personally liable for anything that might go wrong on the business side. If the business is sued, it is the business that is named and not the owner. If the business borrows money and can't repay it, the owners are not personally responsible for paying the debt. In addition, it is much easier to arrange for financing for a corporation, and because they are their own legal entity, they are very easy to sell.

The biggest disadvantage of a corporation might be double taxation. In other words, profits from the business are taxed, and then those same profits are taxed again after the shareholders or owners get their income. Corporations are also expensive to form and keep up, and they require lots of time in the form of paperwork. Anyone who builds a corporation must also be prepared to keep on top of state and federal rules and regulations.

Limited Liability Corporation

The newest business legal structure, a limited liability corporation, combines features of the corporation with features of the partnership. In a nutshell, a LLC protects personal liabilities like a corporation but has the tax advantages of a partnership. LLCs are less expensive to form than a corporation, but provide more protection than a partnership. There are also fewer rules and regulations than there are in a corporation. A LLC is thought by many to be the best of both worlds.-----------------------------------------------------------------------------------------------------If you are a business owner get listed at Best Repair Site, part of Localwin Network.
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