One of the major keys to starting any small business is building a strong foundation. Afterall, your foundation is the leg your business will stand on. A one-size-fits-all structure for small business does not exist, and each business will be structured differently to suit their individual needs.
It’s important to remember that your business structure will impact quite a bit down the line, from your day to day decision making to how you complete your paperwork.
When choosing the business structure that works best for you, consider other businesses in your industry or those doing similar to what you do. Some prominent structures to consider for your business are:
- Sole proprietorship – This is one of the easiest business structures to build, and it allows the owner complete control over their company. If business owners don’t register otherwise, all businesses are automatically considered sole proprietorships. In sole proprietorships, personal assets and liabilities go together with business liabilities and assets when it comes to taxes, and these liabilities will grow along with the company.
- Partnerships – If a group of two or more own a company, this is a partnership. There are limited and limited liability partnerships, and only one partner is granted unlimited liability. This allows all partners to have protection from partnership debts and they won’t be held responsible for the decisions of other partners.
- Limited liability company – A limited liability company, or Pty Ltd, allows you to enjoy the benefits of both a corporation and a partnership. You’re protected against personal liability and corporate taxes are avoided by taxing company revenue through statements instead. Members do have to pay self-employment taxes, however. A potential downside to Pty Ltd, however, is that they do have a limited life in most states. Sometimes Pty Ltd companies will need to dissolve and reform each time a member joins or leaves.
- Corporation – If you’re looking for a high level of protection, this is just what corporation entities offer. That said, they do come with quite a bit of paperwork and a number of fees to contend with. There are 5 main types of corporations with C, S, B, Close corporations, and Nonprofit corporations.
When starting your business, choosing a business structure may seem confusing or intimidating at first. Getting informed early and keeping an open mind to all possibilities gives you the clearest view of your desired business structure and foundation.