Choosing The Right Business Structure

Choosing the right business structure requires knowing what structures are available and what the entrepreneur is willing to accept as risk versus liability and if partners will be included in the deal.Businesses can be listed as sole proprietorships, partnerships, and corporations, under which category there are several subsets including limited liability companies.

A sole proprietorship is the easiest business to make and to dissolve.This type of company offers maximum control and minimum government interference.It is for the company that is owned by one person.That person gets all of the profits.The other side of the equation is that the sole proprietor is also responsible - personally responsible - for all of the losses.That means that if the business goes under with debt still on the books, the owner's home car and other assets can be seized.It may also be hard for a sole proprietorship to keep high performing employees because there is no room for advancement.Investors tend not to invest their money with a one- owner company either.Sole proprietorships only last as long as the lifetime of the proprietor.

A partnership is about as easy to make as a sole proprietorship, but it is for the company that has two or more owners.This allows the people who are involved in the company to share skills, knowledge and resources to make a business work.There isn't just one person involved, so a division of labor can help make things easier.High performing employees may be easier to keep because they can be promoted to partner.In a partnership, the partners share the profits generated by the company, and if one partner makes a bad decision, all of the partners pay for it.Disagreements may be a part of the business because there are at least two people who share in the decision making process.

When a corporation is formed, it becomes a legal fiction in that it is given the rights and responsibilities of a person.While corporations are not people, under the law they are considered as such.This allows corporations to last a lot longer than the people who founded them.Even though legally considered as people, corporations can be bought and sold.That means that people in the company can be given stock options and become part owners in the company.The biggest part of the corporation being recognized as a person under the law is that the owners have limited liability.If something goes wrong, the owners do not have to worry about their assets being seized to pay off bad debts.The problems with corporations are that they are complex, and they get taxed twice.Another thing to consider is that there is a movement to renounce the legal personhood of corporations and to revert their rights to legal privileges.

Choosing the right business structure depends on what the person or people who are building the business want from it.Individuals that are looking for something easy to get into and out of may be best served by building a sole proprietorship or a partnership.However, if the owner or owners are risk averse, and they do not want to have their assets seized if the company fails, it may be best to go with a corporation.There are forms of corporations that are easier to get into, but it may take consulting with an attorney or someone from the small business development center.Creating a business is a great way to find independence and bring in some extra income.The right business will be able to grow and bring financial security to its creators.