Choosing the structure under which a business will operate is one of the most important decisions new business owners make, but it can be difficult to know which structure will service your tax payments and daily operations best. This guide will offer some clarity.
What Is a Business Structure?
A business structure is something that defines your business in terms of:
- Financial structure
- Personal liability
- Control and ownership
- Rights and liabilities
The business structure you choose will determine the legal liabilities of its owners and which form you need for your income taxes.
How to Choose a Legal Structure for Your Company
Because your chosen structure will affect your business over the long term, it’s important to be realistic about many aspects of your business, such as:
- Your expectations for profit and loss
- What type of business you’ll operate
- How big or small your company will be
- How much control you wish to have over business operations
Once you have this information, you can delve deeper into the details of the main business structures.
This business structure simply means that you are the only owner of the business. Therefore, you receive all of your business’s profits, which only get taxed one time. Sole proprietors are also in total control and make all business decisions.
It’s true that this structure is the simplest and, therefore, least expensive. However, it’s important to consider your personal assets, as this structure includes unlimited liability that can put these at risk.
Partnerships divide the ownership of a company among two or more individuals. This structure considers the business and its owners to be one and the same.
It’s a good idea to form some kind of agreement between partners that governs the processes for decision-making, profit-sharing, and dispute resolution, among others. This will allow guidance to be available when needed.
The LLC, or limited liability company, offers more formality and complexity than partnerships but offers similar flexibility. This structure also offers limited legal liability like a corporation. LLCs need to have insurance in the event that legal action is taken, and they must be prepared to pay more to form this type of business structure.
The cooperative or co-op business is owned by those the business serves. An example of the co-op structure would be a credit union or housing co-op. Under this structure, the incomes of co-op members are not taxed. The cooperative may also be able to get startup help from federal grants.
In this structure, a business is a separate entity from its owners, with its own set of legal rights. Corporations allow businesses to sell stocks and own and sell property. However, it can also sue and be sued.
Once you’ve chosen the legal structure of a business, you’ll need to complete other paperwork, which can be confusing. However, FastFilings can help you get your Florida seller’s permit and other important documents in three easy steps.