If you’re just starting out in business, one of the first things you might consider is how to organize your company. Will you go it alone, or will you create a partnership?
5 Typical Business Structures
Sole Proprietorship
A sole proprietorship is the most basic – and easiest to form – sort of business. There is no separation between the company and you, the owner. You are entitled to all earnings and are liable for all debts, losses, and obligations incurred by your firm.
To start a sole proprietorship, no formal action is required; but, like with any business, you must get any appropriate licenses and permissions.
Partnership
A partnership is a single firm owned by two or more persons. Each partner contributes to every facet of the firm, whether it’s money, property, work, or expertise. In exchange, each partner shares in the company’s gains and losses.
Because partnerships involve more than one person in decision-making, it is critical to consider a wide range of topics upfront and draft a legal partnership agreement. They are not legally needed, but they are recommended so that you know how you will make future business decisions from the start.
Corporation
A corporation (sometimes known as a C Corporation) is a separate legal entity controlled by stockholders. This implies that the company, rather than the shareholders who own it, is legally accountable for the acts and obligations incurred by the firm.
Corporations are more complicated than other company forms because they have high administration expenses as well as complicated tax and regulatory obligations. Because of these concerns, corporations are often recommended for well-established, bigger businesses with several employees.
Limited Liability Company (LLC)
A limited liability company (LLC) is a legal organization that combines the limited liability features of a corporation with the tax advantages and operational flexibility of a partnership.
The “owners” of an LLC are known as “members.” Members might be a single individual (one owner), two or more individuals, businesses, or other LLCs, depending on the state.
Unlike corporate stockholders, LLCs are not taxed as a distinct business entity. Instead, all revenues and losses are distributed to each LLC member through the business. LLC members, like partnership owners, declare gains and losses on their personal federal tax returns.
Cooperative
A cooperative is a business or organization that is owned and run by individuals who use its services. They are widely used in the healthcare, retail, agriculture, arts, and restaurant industries. Profits and revenues created by the cooperative are given to members, who are also known as user-owners.
The cooperative is typically administered by an elected board of directors and officials, with regular members having voting power to influence the cooperative’s direction. Members can join the cooperative by acquiring shares, but the number of shares they own has no bearing on the weight of their vote.
Resources
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