There are several common legal structures under which you can set up your business. Which one you choose will depend on the type of business you are establishing, who else is participating in this plan with you, your personal preferences, among several other factors.
Here’s a quick overview of your options.
This is still the most common type of business structure, especially for small businesses just starting out. This means that one person owns and is responsible for the business. They make all the decisions, but they also have all the financial responsibility. Business gains or losses are reported in the owner’s personal taxes.
This is very similar to a sole proprietorship, except that there is more than one person involved in owning and operating the business. The company remains connected with you, but also with your partners. This means that everyone shares the management and financial responsibilities of the business.
Corporation (LTD or INC)
A corporation is an entity that forms and conducts business on its own, separate from any person personally. This means that the financial position of the company is not transferred to the person who owns the company.
While this may seem like the best option to avoid personal liability if something happens within the company, it can be extremely tedious and expensive to set up and maintain. This is not a viable option for most small business owners because most of them cannot afford the required setup fees or record keeping.
Limited Liability Company / Corporation (LLC)
This is a newer and very popular type of business structure because it offers the benefits of a corporation, it doesn’t require many of the same hassles. Unlike a limited liability company, you can establish this type of company with just one person. It provides much of the financial protection of a corporation, but does not require such extensive measures to maintain.
Limited liability company (LLP)
This is a different type of partnership, but it also provides some financial protection to a corporation. Unlike an LLC, you must have at least two partners. However, it is easier to maintain and preserve your structure than an LLC. This business structure is also much more common in the UK, whose LLCs are more popular in the US.
How you set up your business is an important decision. The structure you choose could make a big financial and legal difference. It will depend on many factors, including local laws. Take the time to research your options and speak with an accountant or other business professional and anyone else involved in your business before making a decision.