For years you’ve dreamed of owning your own business. You’ve thought about what it would be like to be your own boss and make the kind of decisions that are best for you.
While you know it will be a lot of work, and it will initially take a lot of your time, you know in your heart it is exactly what you want to do. Before taking the plunge and become an entrepreneur, there are a few things you will have to decide.
First Steps to Becoming a Business Owner
Once you’ve made the decision to become an entrepreneur, you have to decide what type of business entity you want to create. There are five different business structures that you can choose to form. Depending on the size of your business, you can choose to form a sole proprietorship, a partnership, a corporation, an s corporation, or a limited liability corporation. Each one of these structures has different comes time to file taxes.
The Simple Differences
Figuring out which business structure you should use for your businesses should begin with understanding the benefits and disadvantages of each. For both the corporation and s corporation structures, the biggest benefit that you and your shareholders can gain is the ability to protect your personal assets from being seized by creditors to satisfy any business debt. While this is a very tempting benefit, setting up this type of business entity is more costly and unless the election for an s corporation is made, you are opening yourself up for double taxation by the IRS.
If you like the idea of being able to protect your personal assets against business debt, you may want to consider a limited liability corporation. Creating an LLC, will allow you to greatest flexibility when setting up your business and gives you the ability of customizing how your business is structured. However, with this flexibility comes the added paperwork that goes along with it. Every LLC requires a comprehensive operating agreement to be filed out and filed with your government. If you are creating a business that, in general, isn’t one that will generate a ton of liability, you may want to consider creating either a partnership or sole proprietorship.
If you’ve decided to go into business with someone else, you can choose to create a partnership, either general or limited. This business structure can provide your business with a greater amount of capital to start the business as each partner contributes money to the business. The risk with starting a partnership is that each individual’s personal assets can be used to settle business debt. To limit your personal liability to the amount you initially invested, you can create a limited partnership.
The easiest and simplest business structure is the sole proprietorship. As a sole proprietor you will have fewer legal restrictions and minimal paperwork to file with the government. You will truly be your own boss. You won’t have to make decisions with a partner or have to make your shareholders happy. The biggest disadvantage to creating this type of business structure is that you will be fully responsible for all of the debt that may be incurred by the business.
Starting a business can be a very daunting task, but you are up for the challenge. There are a number of things that you have to consider before you can take the plunge. The largest task is deciding on and setting up your business structure. If you are unsure about which structure to form, there are an entire host of resources you can use to help you make the most informed decision about which kind of business you should form.