When developing a new small business, one consideration for entrepreneurs is to find an idea that fits their talents, interests and goals. A business that is a poor fit for yourself and your partners is unlikely to succeed.
Similarly, your new business needs a formation structure that is properly tailored to its needs. Fortunately, entrepreneurs in Northeast Ohio have a range of business formation options. You can choose the one that works the best for your business.
Common business structures available in the U.S. include:
- Sole proprietorship. As the name implies, this type of business is for solo business owners with no partners. You have complete control over the business. Forming a sole proprietorship is simple because you do not have to register with the state. However, if your business gets sued, your personal assets are not kept separate from the business’.
- Partnership. There are two types of simple partnerships: limited partnerships and limited liability partnerships. In a limited partnership, one partner has unlimited liability (and, usually, the most control over the business) and the other partners have limited liability. A limited liability partnership grants limited liability to each partner and protects the partners from each other’s debts.
- Limited liability corporation (LLC). One of the most popular business structures, owning an LLC protects you from personal liability in litigation or bankruptcy. Profits and losses from the business can pass through your personal income without triggering corporate taxes, though you must pay self-employment taxes toward Medicare and Social Security.
- Corporation. Also known as a “C corp,” a corporation is an entity completely separate from its owners. This means you have no personal liability, but the corporation’s profits are subject to taxation. States generally regulate corporations more closely, which means regular record-keeping and reporting. And forming a corporation costs more. C corps often make sense for entrepreneurs in higher-risk industries and those who plan to sell their business or issue public stock someday.
Before choosing your structure, you need the answers and information to make a smart choice. A business attorney can be a valuable resource.