As you start a business, your structure will influence everything about the company. It impacts the day-to-day operations, your taxes and the risk to your personal assets.
According to the Small Business Association, there are five common business structures to choose from.
Partnerships are simple structures if you open a company with another person. One person has unlimited liability in a limited partnership, whereas the other partners have limited liability. The partner with unlimited liability has to pay self-employment taxes.
When you form a sole proprietorship, you have complete control over the company. If you perform business activities but do not register yourself, you have the automatic status of a sole proprietorship. In a sole proprietorship, you have personal liability for your company’s actions.
Corporations are legal entities. The corporation faces taxes and is legally liable. If you require strong personal liability protection, you may want to consider a corporation. The corporation does need you to have extensive record-keeping and reporting. Corporations have to pay income tax on the profit. In some instances, they pay taxes twice. They pay once when they profit and again when they pay shareholders.
An LLC is similar to a corporation and a partnership. You have protection from personal liability. You can pass profits and losses to your personal income without worrying about corporate taxes. LLCs tend to help medium to high-risk companies.
Cooperatives are organizations owned and operated for the benefit of those who use the services. Members are user-owners and distribute the profits and earnings amongst each other. Cooperatives have boards of directors to control the direction of the company.