Setting up a business is a big step for many entrepreneurs and business owners. As a result, anyone starting a business should be familiar with legal resources and options available to them as they are establishing their business and choosing a business form.
Choosing a business form is important because the business structure selected impacts tax payments; the ability of the business to raise money or capital; the paperwork the business is required to file; the personal liability for the owners of the business; and how business decisions will be made and control of the business. Business formation and planning is a significant part of starting a new business and each of these considerations should be carefully evaluated when deciding on a business form.
A sole proprietorship is the simplest business form that gives the business owner complete control over the business but exposes them to possible personal liability. Like a sole proprietorship, partnerships are taxed in a pass through system so that the business owner or partners pay taxes for the business which pass through to their personal tax return. There are different partnership options that impact liability so it is helpful for business owners to be familiar with those options.
A limited liability company is another option that provides protection from personal liability and the limited liability company is taxed separately from the individual. A corporation also provides personal protection from liability and taxation is sometimes referred to a double taxation because both the personal income and corporate income is taxed. Additionally, a corporation has many legal and filing requirements to satisfy which can also be costly. There are several different corporate business form options to be familiar with.
When starting a business it is important to get off to a good start. Selecting the best business form for the goals and needs of the business can help contribute to the success of the business and should be thoughtfully considered.