Choosing the right small business type
Starting a small business is not an easy process and trying to figure out which type of small business you need to choose can be confusing and challenging. If you do not declare the right legal entity it can cause you a huge headache and big fines from the IRS. A small business is considered a privately owned organization that may work with a large number of employees or a small number. A small business generates lower sales from larger companies but their turnover ratio is much lower from that of larger companies. Once you are ready to open up your small business, it is advisable to meet with an attorney and to discuss which business entity you need to declare. Here is some information about the different types of small business so you can understand which category your business fits into.
With this type of small business you are the sole owner over it and you have all the rights over your business. In most cases you likely work as a contractor for other companies and you are paid by them but you are responsible for claiming all the taxes. As a sole proprietor your business and personal assets are mingled and you also have the ability to work from home and to enjoy the freedom of control over your business. A sole proprietorship is easy to start as you really do not need to do much to declare it. You are able to assume all of the profits as well, which is great for your income but you do have to pay taxes on it. There are also some great business deductions you can take as well.
A partnership is when you start a business with other individuals. It is common to see two or three individuals come together to form the partnership and they will share the growth or losses collectively. They all own the business together and it is beneficial because it offers you levied taxes. The downside is that you have greater personal liability and this could spell a lot of financial trouble and legal trouble if you are not careful. A lawyer is needed to help you form the partnership as you all need to sign documents in order to agree to the terms.
With a close corporation you have all the power and decision of a sole proprietorship but the legal ramifications of the partnership. Smaller to medium sized businesses are great candidates for a close corporation. It is not very expensive to run and it can be registered by a lawyer or through an accountant. The payment of debts must be handled by a trusted third party in the event that the CC is unable to make the payments if the company closes.
Limited Liability Partnership
A limited liability partnership comes with almost no liability in the event of legal problems or other things. Partners form the company together but they will not be held legally responsible for the actions of other partners that may be in compromise to company documents. If one of the partners dies, the partnership is ceased. For legal needs, a LLP is a great option as you are safe and protected and won't need to worry about most of the legal issues but you are responsible for decisions and other things to help the company run properly.
Meeting with your accountant or your lawyer is a great decision as they will be able to help you understand the various business entities and which one will work best for your situation. There are many factors that will play into your decision to choose a proper legal entity for your business so make sure you are meeting with the right people to help you make a correct decision.