Types Of Business Structures To Consider For Legal Formation


Choosing what type of business structure you will use is the first hurtle to building your own company, before you ever worry about buying office space. If you are an entrepreneur looking for some guidance, you have come to the right place. Below we have listed 4 of the most common types of business structures. Review the information provided and see if one of these business entities is the one for you.

Sole Proprietorship

A Sole Proprietorship is the simplest business structure to start with. It is an unincorporated business that is owned and run by one individual. This is an excellent type of business structure for budding entrepreneurs because no formal action is required to form a Sole Proprietorship. Instead, this is the automatic status of any formal business with a single owner. There is no distinction between the business and the owner, which means that you must report business profit and losses on your personal tax return. If you want to stick with a simple business structure that you can manage easily then a Sole Proprietorship is for you.

General Partnership

A General Partnership is another type of business structure that is easy to create and maintain. There are no fees associated with the creation of this business entity. The General Partnership business structure takes on the same format of a Sole Proprietorship but with more than one owner. Similar to Sole Proprietorship, all owners will be responsible for reporting their business income on their personal taxes. This is ideal for business partners looking to start a computer repair business, who want to jointly share liability and control of the company.

Limited Liability Company

A Limited Liability Company is one of the most common types of business entities that recognizes businesses as legal structures independent from their owners. Owners of an LLC are not responsible for the debts acquired as a business. However, an LLC is not taxed as a separate business entity. Instead, LLC owners declare profits through their personal income tax returns. If you want to keep your personal assets separate from your business venture, this is the perfect business entity for you.

S Corporation

An S Corporation is a special corporation that is created through an IRS tax election. S Corporations are independent legal and tax structures. This is one of the most common types of business structures that recognizes businesses as separate tax entities. However, an S Corporation has stricter requirements for businesses. It is also more expensive to establish than a Sole Proprietorship or Partnership. So if you are still looking for ways to finance your business, this may not be the best option to consider. However, if you are willing to do the paperwork, an S Corporation could help you maintain your business with the additional benefit of keeping it separate from your personal assets.

Low-Investment Options

If you want to know which types of business require the least startup capital, the options above may not be the right decision for you just yet. However, there are some types of businesses that do not require a ton of startup capital that you may want to consider. If you are crafting or make a specific product, selling products on Etsy or a similar marketplace is a great low-cost business you can start. Perhaps you are a skilled web developer. If so, offering your services to friends and family via a business Facebook page is a great way to get started without having to pay legal business formation fees. Consider using these low-cost methods to start a business. Then, once you have enough capital saved up, you can become official and incorporate your small business.

There are many types of business structures to choose from. The Sole Proprietorship is the default business structure for any start-up. However, you can formally declare your business as any of the types listed above and more. If you are looking to start your own business, take these common business entities into consideration.

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