Guest Author - Meg Meyer
Sole Proprietor -
An entrepreneur or independent contractor is likely starting out as a sole proprietor. The person doing the day-to-day operations, legally, is the business. There are minimal filing requirements, but maximum risk. If your business gets sued - YOU get sued. Unless you have a business that risks that sort of trouble, you may be fine. If you are doing childcare from home, or doing construction for others, you might want to look into a business structure that protects your assets.
Partnership -
When two or more people share the responsibilities and risks of owning a business, it is called a partnership. And like a sole proprietorship, the legal responsibility flows through to the owners of the business. The rewards do, too. With more than one principal(owner) in the business - it may be easier to raise funds, divide tasks, etc. Just be very careful and specific when drawing up a partnership agreement.
Limited Liability Company (LLC) -
LLCs and LLPs (Limited Liability Partnership) are becoming more common and permissible in most states. With the ease of a Partnership or SP, and the asset protection of a corporation, this style of business is very attractive. Profits are reported on the personal income tax reporting forms of the principals of the business. Organizing this form of business is more formal than that of a partnership.
Corporation -
A corporation is legally a unique entity. It can be sued, taxed, and enter agreements, itself. Filed in the state in which it is headquartered, a corporation is separate from the owners. Owners are shareholders, who elect a board of directors to oversee the corporation. The corporation can raise funds in the form of selling stock to shareholders and becomes answerable to those shareholders. Benefits to employees can be deducted from taxes, dividends however, can be taxed twice.
Subchapter S Corporation (S Corp) -
An S Corp effects taxation only. Shareholders are able to have earnings and profits pass directly to their tax return. "The catch here is that the shareholder, if working for the company, and if there is a profit, must pay him/herself wages, and must meet standards of 'reasonable compensation'."
For more information on all of these types of business and the forms involved please see the Small Business Administration, in the United States, or look up the governing body and similar forms of business in your own location.
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