While you're in the outset stages of starting your new business, one of the primary choices you'll make is which company structure to choose. This is an important decision, as it has an effect on the income tax structure of your own business, and decides which forms you'll post to the Internal Revenue Service (IRS).
Sole Proprietorship
Sole Proprietorships are companies owned by one individual, or a wife and husband. They are the most common type of company structure for small and micro companies. Allow flexible control over your small business. This is the simplest kind of business structure. You're personally liable for any financial obligations built up by your small business.
Partnership
A Partnership consists of 2 or more business partners. Each partner plays a role in the business financially and by contributing skills or labor. Partners share in the profits from the business, and are also accountable for the loss and debts. There are three forms of partnerships. Here's information regarding each:
1) General Partnership:
This company framework assumes that each companion is similarly invested in the company-he has provided the same financial investment, works the same amount of time in the business and will receive equal shares of income, as well as being equally accountable for debts and deficits. If all companions don't have equal stakes in the industry, the various rates should be obviously specified by a Partnership Agreement.
2) Limited Partnership:
This structure works well with partners who are unequally invested in the business, both financially and in terms of labor and abilities. The liability of each partner depends on his percentage of the investment. Partners may be free from debt that other partners accrue. This composition is well-liked by partners in professional fields such as sales or law.
3) Joint Ventures:
They are generally used when the business will take on just one project, or will be a short lived endeavor. The business structure can later be changed into a continuing alliance.
Corporation
Corporations are certainly more challenging business structures. They are challenging, requiring much documentation and organization. Companies often retain attorneys to help with paperwork and other legalities. Corporations secure shareholders from personal responsibility. Stocks of the corporation can be offered to the general public, creating many shareholders. Corporations are viewed as entities on their own. Non-profits may be Corporations, as well as for-profit companies.
Limited Liability Corporation (LLC)
Limited Liability Corporations are a blend of Partnerships and Corporations: An LLC could be owned by a number people (some states have particular rules regarding the amount of people permitted for an LLC). Entrepreneurs are not personally accountable for the debts and deficits of the business that are acquired by other associates. The LLC is not subject to taxes. Instead, each individual owner obtains profits or pays losses, then reviews that income or loss when he files with his personal federal income tax. Articles of Organization and an Operating Agreement spell out the important points about how precisely the business will be set up internally. Companies in the banking and insurance sectors will not make use of the LLC business structure.
