Which Structure’s Right For You?
When you’re starting a business, you need to consider the various options available and decide on the best legal form or business structure for your company. There are typically three main options to choose from:
- Sole Proprietorship
- Corporation (“Limited” or “Incorporated” Company)
A sole proprietorship is a business structure where the owner (proprietor) owns all the assets of the company, but is also responsible for all the liabilities of the business. From a legal perspective, there is no difference between the business and the owner – they are both one in the same entity. All profits of the business are personal profits of the proprietor, and must be included in the proprietor’s personal tax return.
A sole proprietorship is the simplest form of business to start up, since all you need is: a trade name registration, business licenses and tax numbers. It is also the simplest form of business to operate, as there are fewer government regulations to deal with – and as the only decision-maker (sole proprietor), you call all the shots yourself.
A partnership is similar to a sole proprietorship in the fact that there is no legal difference between the business and the owners – they are all one in the same entity. In the case of a partnership, however, the assets, liabilities, and profits are shared among the partners, based upon the governing provisions of their “partnership agreement.” Partners under this business arrangement are jointly and individually liable for the actions of all partners.
Since two or more owners operate the business, there exists significant potential for disagreements and strife in this type of business structure – without a partnership agreement in place to guide and direct the affairs of your enterprise. A well-drafted partnership agreement will set out the important terms of your business arrangement concerning issues such as:
- How to make important decisions.
- How to share business profits.
- How to resolve disputes.
Corporation (“Limited” or “Incorporated” Company)
Unlike a sole proprietorship or a partnership, a corporation is a separate legal entity under the law, and is considered distinct and separate from its shareholders (owners). In this business structure, the corporation owns all the assets and controls all the profits of the business, and is likewise responsible for all the liabilities. With limited exception (breach of trust, for example), shareholders of a corporation have no personal legal liability for the actions of the corporation.
Depending on the structure of the corporate charter, profits flow to the shareholders by various means, including: salaries, bonuses, dividends, and in some cases, by the distribution of shares or personal tax designations.
Other Forms of Business Structure
- General Partnership
- Limited Liability Partnership
- Limited Partnership
- Limited Liability Company (LLC)
- Professional Corporation
- Joint Ventures
If you are contemplating starting up a business venture, we would be pleased to advise you as to the best and most appropriate structure for your circumstances.
Please feel free to contact us if you have any questions that aren’t answered on our site, or to schedule an appointment. We’re always happy to chat with you about any of your legal needs.
- Phone: (587) 272-2050
- E-mail: firstname.lastname@example.org