When starting a new business, it is absolutely important to keep in mind that the l formation of the business will be vital. Whatever business structure you decide to form will have its advantages or disadvantages. There are several types of business entities.
These are partnerships, LLCs or Limited Liability Corporations, sole proprietorship, co-operatives, non-profits and corporations. The business structure will have to choose either of these structures and follow the rules in regards to taxation, buyouts and any other agreements. These have to be followed strictly to avoid legal problems in the business.
Choosing a business structure can be a difficult task, which is why it would be best to hire a lawyer to help you go over the terms and ensure you understand the laws that affect you business entity. One of the major issues is choosing a proper taxation module to ensure that you will get maximum profits and have a good profit margin.
There are certain things to consider when you decide to put up a business. First is complexity of the structure. A sole proprietorship is obviously the simplest one, while corporations have some complex rules. If you decide to go for the simple structure, choose a sole proprietorship or partnership.
Liability is also another aspect to consider. When the business incurs losses, this determines who will be held liable. This is very important as it decides how liable everyone in the business is. In the case of corporations and non-profits, liabilities are usually less. If you want to be less liable for losses, then a corporation is best.
With a LLC, the liabilities are also limited. You could also decide to choose this structure due to this fact. However, keep in mind that there are other aspects that prove to be a disadvantage with LLCs.
One of these is taxation. Taxation is the same with LLCs and sole proprietorships. The tax is calculated from the general income. It is crucial to ensure that you file your tax papers properly to avoid getting taxed twice at the end of the business year. You can have your lawyer help you out with that. Corporations and non-profits have different rules for taxation. They are taxed as a single unit.
Additionally, another point to consider is licenses and permits. It is mandatory for each business to have a license to operate. This license with either be issued as a state license or federal license depending on the type of business. Operating any business without a proper and up to date license and permit can result to some legal consequences.
There is also the capital investment issue. Since a sole proprietorship may be small, you will only need capital from friends family or banks. For corporations, the business owners will have to look for the proper investors to create the required amount of capital.
Non-profits also have to look for capital from investors. LLCs on the other hand can get capital from banks and the business partners.