Small Business Legal
Structures
One of the first decisions that you
will have to make as a business owner is what business structure you want to
use. Depending on your situation and financial funding, you should consult with
an accountant and attorney to help you select the form of ownership that is
right for you. If you do not have enough funding, you will need to do a lot more
thorough research to reduce the chance for error.
We’re here at
Webhostingreport.net will try to give you some basic understanding of what
options you have and which one might be right for you. Once you decide which
option eventually is the best for you, you are able to intensify your research
and to build a case.
Sole Proprietor
The majority of
small businesses starts out as a sole proprietor. These businesses are owned by
one person, usually the individual who has day-to-day responsibility for running
this business. Sole proprietors own the complete assets of the business -
including all the profits generated by the business. The owner (sole proprietor)
also assumes complete responsibility for any of its liabilities or debts. In the
eyes of the law and the public, the owner (Sole Proprietor) is one in the same
with the business entity. Unlike a LLC or a corporation, you don’t have to file
any special forms or pay any fees to start working as a sole proprietor. All you
have to do is declare your business to be a sole proprietorship when you
complete the general registration requirements that apply to all new businesses
in your state/local area.
Advantages of a Sole Proprietorship
-
Easy to organize
- Owner has complete control
- Owner gets all the
income
Disadvantages of a Sole Proprietorship
- Owner is liable
for every kind of debt from the business
- Benefits are not business
deductions
- Business and personal assets are at
risk
Corporation
A corporation is considered by law to be
a unique entity, completely separate and apart from those who own it. A
corporation can be taxed; it can be sued; it can enter into contractual
agreements – all by itself and therefore protecting the personal assets of the
owner(s). if the corporation gets sued and found liable, the personal assets of
the owner(s) cannot be touched under normal circumstances. The owners of a
corporation are its shareholders. The corporation has a life of its own and does
not end to exist when the ownership changes. To form a corporation, you must
file the “Article of Incorporation” with your state government or with the state
government where you want to have your business registered.
Advantages
of a Corporation
- Shareholders have only limited liability
- Can
raise funds through the sale of shares/stock
- Your business is very
profitable, so that you can save a significant amount of income tax by keeping
the profits in the corporation each year. This results in higher value per
share.
Disadvantages of a Corporation
- To incorporate requires
more time and money than starting a sole proprietorship
- Running a
corporation requires certain organizational duties that need to be met
(Shareholder meeting, reports, create corporate bylaws, must issue stock
certificates)
- Actual taxation might be higher
Limited Liability
Company (LLC)
A Limited Liability Company is designed to provide the
limited liability features of a corporation and the tax efficiencies and
operational flexibility of a sole proprietorship and partnership. The actual
formation is a little more complex and more formal than that of a sole
proprietorship and/or partnership. A LLC does have members but can also be
formed by just one person (=1 member). Basically – a LLC receives the
corporation’s protection from personal liability for business debts and the tax
structure of partnerships and sole proprietorships.
Advantages of a
Limited Liability Company (LLC)
- Members have limited liability
-
Actual taxation might be more beneficial for the members
- Business form
looks more professional than a sole proprietorship in many cases
- A LLC only
needs one member
Disadvantages of a Limited Liability Company
(LLC)
- A LLC cannot seek funding by offering shares to shareholders
-
The liability protection can be removed by a judge if it is obvious that the
members did not run the business as a LLC but as a partnership / sole
proprietorship
- Less laws that govern the LLC. This could be a problem in
complicated business situations
There are 2 additional business
forms that we do not cover this time. The partnership and the S-Corporation. We
do not consider the partnership a good business form as each partner can be held
liable for the debt created by the other partner. The S-Corporation is
eventually to complicated for most situations and requires more guidance by a
lawyer and accountant.