Exploring Common Business Structures
Starting a home based business can be a very exciting and challenging time all at once. You must take many things into consideration when faced with this change in life. One of the many things that you must do when it comes to effectively preparing for your business, is to take a stand on the overall business structure that you want to put into place. The most common business structures include that of the following:
- Limited Liability Corporations
- Sole Proprietorship
- S Corporations
- Partnerships
Here, you will receive a brief introduction to each of these business types so that you can determine which one will work best for you.
1. Limited Liability Corporations is a structure in which a business displays both the qualities and characteristics of a basic partnership and that of a basic corporation. This is often represented by the initials of “LLC”. When a small business chooses this particular type of business structure, they are able to enjoy the luxury of advantages when it comes to taxes that must be paid to the Federal Government under which they operate. The advantages in this area are much like the ones that are experienced when one experiences a structure that is considered to be a partnership. Furthermore, the LLC is able to take advantage of the fact that they receive protection from cases of personal liability. This is often a characteristic that is displayed in a basic corporation.
2. Sole Proprietorship occurs when an individual engages in a small business structure in which they own all by themselves. The business must be unincorporated in order to be considered for this type of business structure. In this business structure, you are expected to appropriately manage your spending and profit and report it to the Internal Revenue Service at the end of the year. Furthermore, you are responsible for handling other tax liabilities, like Medicare and Social Security.
3. S Corporations are those in which the structure allows the owners to be exempt from certain types of taxes, and other financial liabilities. Businesses that elect this form of structure for their small business should work to ensure that they carefully track their spending, profits, basic revenue, and any other types of gains. There are some gains that must be considered when it comes to tax liability, but most are not when it comes to S corporations for the small business.
4. Partnerships occur when more than one individual has an invested stake in the ownership of the business. These types of business structures are often viewed as ideal because they are more cost effective. Tax liability is shared between each individual that takes part in the agreement for the small business partnership. Each person is held personally responsible for the affairs of themselves, as well as their partners in the small business.
Choosing the right structure for your business can be difficult; however, taking the time to research your options will prove to be extremely handy.
Kevin Sinclair is the publisher and editor of Be Successful News, a site that provides information and articles on how to succeed in your own home or small business.
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