About the author: Priyanka Prakash is an author specializing in finance, lending, law, and insurance for small businesses, helping business owners navigate complex concepts and decisions. Since earning a law degree from the University of Washington, Priyanka has spent half a decade writing about the financial and legal concerns of small businesses. Read More The cost of ownership varies depending on the market your business belongs to. Typically, your initial expenses include state and federal fees, taxes, equipment supplies, offices, bank fees, and any professional services your business wants to receive. Some examples of these businesses include freelance writers, tutors, accountants, cleaning service providers, and babysitters. To organize as an S corporation or convert your business to an S corporation, you must complete IRS Form 2553. S-companies can be a good choice for businesses that want a business structure, but like the tax flexibility of a sole proprietorship or partnership. In general, partnerships offer more flexibility than other types of businesses, but are also more at risk. The simplicity of a sole proprietorship or partnership makes one of these business structures a good starting point for freelancers and consultants, especially if the industry in which they operate carries low legal risk. Liability: LLC members are protected from personal liability for debts and business claims, a feature known as “limited liability.” If a limited liability company owes money or faces a lawsuit, only the assets of the company itself are threatened.

Creditors cannot access the personal property of LLC members except in cases of fraud or illegality. LLC members should exercise caution so as not to “break the corporate veil,” which would expose members to personal liability. For example, LLC owners should not use a personal checking account for business purposes and should always use the LLC trade name (rather than the owner`s individual names) when working with clients. However, as a starting point, there are three general factors to consider when choosing between types of business entities: legal protection, tax treatment, and paperwork requirements. In the next section, you can see how entities compare to each of these factors. Every entrepreneur must choose a legal structure for their business to operate, register and pay taxes. There are different types of legal structures you can choose from, each with implications for your taxes, personal liability, partnerships, and registration requirements. The following is not intended to be an exhaustive list of the different types of legal structures and is not intended to serve as legal or tax advice, but may serve as a starting point for your own research. Freelancers, consultants, and other service professionals typically work as sole proprietors, but it`s also a viable option for more established businesses, such as retail stores, with one person at the helm. This entity is owned by two or more persons. There are two types: a partnership, where everyone is divided equally; and a limited partnership, where a single partner has control of its operation, while the other person (or persons) contributes to the profits and receives a portion of them.

Partnerships have a dual status of sole proprietorship or limited liability company (LLP), depending on the financing and liability structure of the company. Although not required by law, a partnership agreement, also known as a partnership agreement, is often created to describe each partner`s contribution to the business. These articles determine the roles of the partners in the business relationship, whether financial, material or managerial. Below are a few you may want to include in your “articles written about partnerships” to protect the best interests of your partnership. Depending on their needs, many entrepreneurs also consult a lawyer. Some types of legal structures are easier to set up than others. For example, setting up a sole proprietorship does not require you to file incorporation documents (although tax registration is still required), while businesses such as corporations and limited liability companies require you to formally form your business with the state. For more information, visit the U.S. Small Business Administration website or the IRS website.

You may come across another business structure called a limited liability company (LLP). In an LLP, none of the partners have personal responsibility for the business, but most states only allow law firms, accounting firms, medical practices, and other professional services firms to organize themselves as LLPs. These types of companies can organize themselves as LLPs to prevent each partner from being liable for the actions of the other. For example, if a physician commits malpractice in a physician`s office, other physicians with an LLP may avoid liability. If the nature of the business is such that the business does not have to keep a large portion of the profits in the business. In this case, all or most of the profits can be distributed in the form of dividends, without the double taxation that would occur if no S company statute were in force. Where is your business going and what kind of legal form allows for the growth you envision? Contact your business plan to review your goals and see which structure best fits those goals. Your business should support the opportunity for growth and change, not hold it back from its potential. Sole proprietorships are by far the most popular type of business structure in the United States because they are so easy to get started. There`s a lot of overlap between your personal and business finances, making it easy to get started and file taxes. The problem is that the same lack of separation can also get you into legal trouble. If a customer, employee, or other third party successfully sues your business, they can take your personal assets.

Because of this risk, most sole proprietors end up converting their business to an LLC or corporation. The law treats a corporation as a separate entity from its owners. He has his own legal rights, regardless of who owns it – he can sue, be sued, own and sell property, and sell property rights in the form of shares. Business filing fees vary by state and fee category. For example, in New York, S Corporation and C Corporation`s fee is $130, while the non-profit fee is $75. In the United States, most corporations are incorporated under the laws of a particular state. The federal government does not generally integrate entities, with a few exceptions. “States have different requirements for different business structures,” Friedman said. “Depending on where you settle, there may also be different requirements at the municipal level. When choosing your structure, you understand the state and industry you are in. It`s not a one-size-fits-all solution, and businesses may not know what applies to them. “As a small business owner, you have to play many roles to keep the business running smoothly and properly.

However, there are times when you shouldn`t try to be a lawyer, accountant, marketer, foreman, salesperson, etc. Instead, take advantage of the professional advice that is so readily available. A good lawyer, or CPA, can help you interpret the many legal and technical issues related to one or all of the legal structures of businesses. Your time and money savings for hiring a professional advisor can more than offset the potential cost of missteps and misturns when choosing your company`s business structure. Since laws are constantly changing, it`s best to consult a lawyer or accountant for the latest regulations and requirements before deciding on the right business structure for you. A corporation is a separate legal entity organized in accordance with state and federal laws. The property is divided into shares. Business activity is governed by a charter that defines the powers and limits of each company.

Companies that operate in more than one state must comply with federal interstate trade laws and state laws, which can vary widely. Chrysler is one of the largest automakers in the United States. Since its inception, Chrysler has maintained its status as a limited liability company (LLC). When it comes to start-up and operational complexity, nothing is easier than being a sole proprietorship. All you need to do is register your name, start doing business, report the profits, and pay taxes on it as personal income. However, it can be difficult to obtain external financing. Partnerships, on the other hand, require a signed agreement to define roles and percentages of profits. Companies and LLCs have various reporting obligations to state and federal governments. Most types of legal entities are governed by a modified version of the original version of the Dutch Burgerlijk Wetboek. In addition to the legal registration of your business entity, you may need certain licenses and permits to operate.

Depending on the type of business and its activities, it may be necessary to obtain a license at the local, state, and federal levels. Your choice of business unit is very important. The entity you choose can influence how people perceive your business and, more importantly, it has a huge impact on your legal commitment and finances. Limited liability companies (LLCs) are one of the most flexible types of businesses. LLCs combine aspects of partnerships and companies. They retain the tax advantages of sole proprietorships and the limited liability of companies. LLCs can choose between different tax treatments. As long as the LLC chooses not to be treated as a C corporation, it retains its flow-through tax status.