The three main legal structures to start a business that I found most appropriate for beginners like me were, Sole Proprietorship, Limited Liability Company (LLC) and Subchapter S (S Corporation).
Sole proprietorship is one of the most common and inexpensive structures for small businesses. There is not a lot of paper work nor federal approval processes and complex application forms. Also, all taxes related to the business would be included in the personal tax return. Each state has different requirements in regards to licenses and registration, but in general it is simple and cheaper than the other options as well. The downside of being a sole proprietor is that this structure does not offer protection against personal assets if something goes wrong with the business.
Limited Liability Company or LLC is pretty similar to Sole Proprietorship, being that all business taxes are included in the personal tax form, however this structure offers assets protection. This option is great for those who are starting and think that it would be worth it to pay a little more and go through more paperwork to be able to have additional protection while having some of the same benefits that Sole Proprietorship offers.
A Subchapter S or S Corporation, is also similar to Sole Proprietorship and LLC. It does offer protection as the LLC structure, however the business owner gets to avoid double taxation and can deduct the losses from his personal taxes as well.
Choosing the right legal structure all depends on how much money and time you are willing to spend, how big the company is and the type of risks the business presents. I chose to start with Sole Proprietorship because I don’t believe my business is very large starting out and presents many risks at the moment. I also like it because I will be able to start my business faster and easier with this structure.
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