Starting a small business involves a lot of detail, including considering the type of legal structure you hope to use. Selecting the appropriate structure for a small business depends on the business’ goals, whether you’ll hire employees and the environment in which business will be conducted. Read on to learn more about legal structures for businesses.
1. Corporation: A corporation is made up of aspects that include shareholders and a board of directors. Using a corporation as a legal structure is needed when a company is ready to be considered its own legal entity, which can reduce personal liability in case of any legal or financial issues with other businesses, employees, or in case of bankruptcy.
2. Partnership: Choosing partnership as your legal structure is appropriate when a business owner opens a small business alone or with one other business partner. A general partnership would indicate that all parties are equally liable for financial responsibilities. However, a limited partnership ensures that one party is wholly financially responsible and other parties are only partially liable for the financial amount they’ve invested.
3. Limited Liability Company: Commonly abbreviated as “LLC,” this option is for corporations that appreciate the protection from financial liability without having double taxation. This is possible because LLC owners file the profits and losses on their own personal tax returns.
4. Sole Proprietorship: This can be used for one person ready to own and operate a small business without any other partners. Owners are required to indicate earnings on their personal tax returns, and they are fully liable for all financial responsibilities of the business.
Opening a small business can be one of the most rewarding professional and personal experiences for aspiring entrepreneurs. Don’t let the seemingly complicated legal aspects of which type of business entity you should form daunt your dreams of being your own boss. Be sure to contact The Wilkerson Law Office for expert legal advice about how to form your small business or nonprofit organization.
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