Sometimes a spark hits, and you have a great idea for a product or service you would like to sell. Going into business on your own can be intimidating. Educating yourself on the variety of business structures you can choose from is a good place to start.
If you are going into business on your own, you may choose a sole proprietorship. This is the default business structure if you do not register as another. Sole proprietorships are not separate business entities from their owners. That means that as the owner you are liable for your business’ actions, debts and obligations. Sole proprietorships are permitted to have a trade name, but they generally cannot sell stock and banks do not always lend money to sole proprietorships.
When two or more people want to go into business together, the simplest business structure they can choose is a partnership. Generally, the choices are a limited partnership and a limited liability partnership.
Limited partnerships have one partner with unlimited liability while the other partners enjoy limited liability and limited control over the business. These relationships are documented in a partnership agreement. All business profits go through the partners’ income taxes and the genal partner must also pay self-employment taxes. Limited liability partnerships, unlike limited partnerships, provide all owners with protection from the debts of the business and the actions of the other partners.
What to choose?
Ultimately, what business structure to use for your new enterprise depends on whether you are going into business for yourself or going into business with others. Sole proprietorships, partnerships and LLCs (not discussed here) are all good options to consider. With the right information, you can choose the business structure that is best for you and your burgeoning enterprise.