When starting a company, you need to consider your business structure. In some cases, you may need to figure out a structure before registering the business.
According to the U.S. Small Business Administration, several structures to consider.
Limited liability company
Choosing an LLC for your structure protects you from personal liability. When you own an LLC, you generally do not have to worry about your assets if your business faces lawsuits or bankruptcy. If you have a medium or high-risk business, you may want to consider an LLC. In addition to asset protection, you may pay a lower tax rate than corporations.
If you have one or more other people who want to start a business with you, consider a partnership. Partnerships have simple structures with two common kinds, including limited partnerships and limited liability partnerships. A limited partnership has only one partner with unlimited liability and others with limited liability.
Corporations are separate entities from the owners. They can make their own profit, have their own taxes and have legal obligations. If you want protection from legal liability, a corporation has an owner’s best interests in mind. Corporations have to pay income tax on profits.
If you own a business by yourself and want complete control, you may consider a sole proprietorship. Sole proprietorships do not have a separate business entity. As a sole proprietor, you have a personal stake in your business. If you face a lawsuit or go into debt, creditors may go after your personal assets. Sole proprietorships may benefit those in low-risk benefits.
Choosing your business structure depends on the liability you want and how much you want to pay in taxes.