A question that runs through many business enthusiasts mind frequently is what type of ownership they should seek when starting a new business. With the different advantages and disadvantages that come with this serious choice that could effect the life and longevity of your business, we are going to outline the different types of business ownership, and the responsibilities that come with that.
Sole Proprietorship
A sole proprietorship is a business that is run by you. When it comes down to it, you are the one who is making or breaking the business. All income and profits run through you. A huge advantage that comes to many business owners mind is with a sole proprietorship there really is no paperwork that needs to be filed. Simply claim your income or losses on your tax return and you’re done.
Although filing practically no paperwork seems easy, there are some serious downsides that comes with the business. The power of holding a company in your name is quite a responsibility that requires much organization. If your business slips up, it all comes right back on your shoulders. Although there is much risk with this type of business, you have much more of earning potential because you are the only one getting the profit.
Partnership
Very similar to a sole proprietorship, a partnership is a business held by two or more individuals. Just like the sole proprietorship, there really is no need to file any paper work like you would have to with a corporation or an LLC. Similarly, the income gets filed on the owner’s personal tax return.
The advantage with a partnership is that all of the weight isn’t put on your back. You also have someone in your business that has to deal with the same struggles you do. Having someone else in your business also holds you accountable on how strong your business foundation is. Although it seems like a fantastic idea, with a partnership, many times you may have different opinions. Sometimes these different opinions lead to breaking and ruining your possibly life changing business opportunity.
Corporations
Starting your small business as a corporation can be a great way to protect your assets and not risk anything on your personal taxes. The main advantages of a corporation are that everything is done through it. All your taxes are filed through it, and the corporation is what is at risk, not you.
Corporations are a great way to start a business if you are in a business that might have the risk of:
1. Getting sued or have legal action taken against
2. Having lots of assets that could get taken away by the government and creditors
Limited Liability Corporation (LLC)
A LLC is simply a Corporation but with a different tax structure. A LLC still protects you assets which is very important to some people. But with a LLC, you don’t file taxes under it. You still file your taxes under your personal tax return.
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