Every entrepreneur doing business for the first time is faced with the decision of select the business structure that he/she wants to adopt. For example, decisions vary from operation’s point of view, laws and taxes, to personal responsibility.
The aim of this article is to explain various structures of businesses that exist so that readers can make the best decision that will be suitable to their businesses. Here, we outline the primary business structures available: These are Sole Trader, Partnerships, Limited Liability Company, Incorporated Company, and Co-operative Business respectively.
1. Sole Proprietorship
Sole trader is one of the most established and easily accessible forms of business preferred by start-up firms. It is a business that is operated by only one person and all the liability and accountability of the business rests on him.
This structure can be easily established and another advantage that comes with this form of structure is that the owner is the one who has full control. However, it also means that the owner sees himself responsible for all the business liabilities and all the financial obligations. Those taxes, which are levied along with the owner’s individual income tax return, are as easy as ABC.
2. Partnership
Forum shopping is a good partnership because it is a specialization between two or more people who intend to share the profits and/or losses caused by a certain business. There are two primary types of partnerships:
There are two primary types of partnerships:
A. General Partnership (GP):
In the general partnership, it is agreed that all partners have the authority to run the business and all of them are jointly and severally liable for the debts. This structure is convenient to form and success is based on the cooperation and involvement of all members of the organization.
B. Limited Partnership (LP):
Limited partnerships have both general and limited partners But I know that any commercial use of the material required written consent from the University of Phoenix. It can also involve a general partnership where partners take responsibility for the management of the business and are responsible for any losses or debts, while a limited partnership involves the partners who invest in the business but they have restricted liability and are also mostly not involved in the running of the business.
Taxes are not imposed on the business partnerships, rather the incomes earned pass through the respective organizations and the individuals are taxed for them. Thus, the profits and losses are taxed on partner’s individual returns as indicated in the partnership act of the United States.
3. Limited Liability Company (LLC)
An LLC shares some characteristics of both a corporation and a partnership, with the specific protection of shareholders, tax advantages of partnerships, and the corporate operational structure. Business ownership is vested in individual members who are shielded from individual legal and financial responsibility for the business obligations and legal suits. An LLC could be formed by one or more members and their management could be affected by the members themselves or through managers.
One of the main advantages of LLCs is that it allows business entities to structure their taxation in several ways. Referenced originally as conduits for economic activity, they are accorded pass-through taxation status, but can opt to be taxed like a corporation. This flexibility combined with limited liability protection puts the LLC as a high option for small and medium businesses.
4. Corporation
A corporation business structure is relatively larger than the partnership, which is the reason why large companies create them. It is legal person that is the separate from its shareholders, which means that it can carry out legal relations in its own name, carry out judicial and non-judicial actions with the aim to protect its rights and interests, own the properties. There are two main types of corporations:
A. Corporation (C Corp):
This is the typical corporation based on the general definition of the concept of the corporation put forward in the literature. This type of business structure provides the greatest legal protection to its owners against personal legal judgments or demands but is frequently more bureaucratic and laws-bound. C Corps are generally subjected to the operations of double taxation, that is, profits are taxed at business entity levels and then at the individual level by way of taxing dividends issued to investors.
B. S Corporation (S Corp): An S Corporation gives the same protection to the shareholders liabilities as a C Corp while enabling corporations to directly pass income/losses to shareholders, avoiding corporate taxation. However, there are restrictions on the limits of shareholders and who can be a shareholder of the company.
4. Cooperative
Cooperative is a form of business which is formed for the purpose of mutual benefit of the members, and it is owned and controlled by the member. A cooperative is another business structure and is more democratic as compared to other business structures as its members have equal say in all cooperative decisions and they also share profits with the business.
It is present mostly in the agricultural, retail and utility sectors due to its collective system of operations. Some of them may be incorporated or unincorporated while their structure is created to accommodate the needs of the members instead of profit-oriented formulas.
Conclusion
The structure of your business is a strategic decision that should be directed by your knowledge of what is right for you and your business in the long run. But each of them has its positive and negative aspects in terms of number of parties interested, legal responsibility issues, taxation etc. You can as well seek advice from a Business Structure Lawyer Perth or financial professional to ensure choose the right structure that fits your business requirement and vision.
Whatever business structure you decide to go for, you can either have the ease of sole trader, the shared responsibility of partnership or the plenty of opportunity like in LLC, limited company or as much formality in cooperative, the right business structure can get you the right tone for the success of your business.
