Which Business Ownership Structure Should I Choose?
You have several options when choosing how to structure your business-but which option should you choose? The answer to that question will depend on the kind of business you want to run. Is your business small? Do you have a business partner? Are you in a line of work that could result in litigation?
Your answers to these questions will determine the ownership structure that is best for you. The first step to deciding which ownership structure to use is to learn about each one. The legal resource nolo.com offers a great breakdown of each ownership structure. After doing some research, talk to the attorneys at Spivey, Pope, Green & Greer to learn more.
The most common ownership structures are:
- Sole proprietorship
- Limited partnership
- LLC (limited liability company)
- For-profit corporation
- Not-for-profit corporation
A sole proprietorship is a business owned and run by one person. The business is not registered with the state, and you don’t need to fill out any special paperwork. The owner of a sole proprietorship is inseparable from his or her business, meaning the owner reports business income and losses on personal tax returns. Sole proprietors are also personally liable for all of the business’ debts and claims.
The only difference between a sole proprietorship and a partnership is that a partnership is a business owned by two or more people. Partners file taxes for their share of the business’ income and are still liable for all debts and claims.
In a limited partnership, one general partner solicits investments from limited partners. Only the general partner controls day-to-day operations and is liable for business debts and clims. Limited partners have limited control, but they are not liable for debts or claims.
LLC (Limited Liability Company)
Unlike the above 3 ownership structures, an LLC is considered separate from its owner(s). In most circumstances, owners are not personally liable for business debts and claims. LLCs receive a tax identification number; however, owners still need to report business income and losses on personal tax returns.
A corporation is similar to an LLC, but it is considered completely separate from its owners. That means the business pays its own taxes. A corporation is a good choice for businesses at risk of being sued or of accumulating high business debts. It is also good for owners who want to protect personal assets from business creditors.
As you would expect, a not-for-profit corporation is a charitable, educational, religious, literary, or scientific organization with the purpose of giving back the community. Money that goes toward whatever causes these corporations support is not usually taxed.
For help structuring your business, schedule a consultation with the attorneys at SPGG Law.