Setting Up Your Business: Which Type of Organization is Right for You?

So you have decided to start your own small business. You will certainly have your work cut out for you, but before you get to work implementing your business plan, you will need to register your business with the state. The official state of Illinois business registration, licenses, and permits website offers some helpful details about the process.

 There are several different kinds of business organizations that you can choose from, each with its own set of advantages and disadvantages. It is important to select an appropriate organization type to maximize tax savings as well as business efficiency. Below is a brief description of each of the three main types of business organizations available to most business owners.

Setting Up Your Business: Which Type of Organization is Right for You?Sole Proprietorship: In terms of the number of businesses, sole proprietors make up the largest percentage. This is simply an individual conducting business alone. The benefits of a sole proprietorship are the ease of setting one up, low start-up costs, and relatively little government regulations. However, because the organization is tied to the business owner, or sole proprietor, the business only “lives” as long as the proprietor. Additionally, the proprietor is personally responsible for all liability stemming from the business.

 Partnership: Just as it sounds, a partnership involves more than one business owner. Like sole proprietorships, partnerships are also taxed at the business owner’s personal tax rate, rather than at the corporate rate. This is a benefit to many. Partnerships also offer the benefit of having multiple people (and their expertise) involved. However, with additional people comes the very real possibility of disagreement between partners. This, and the fact that there is unlimited personal liability, are two drawbacks of partnerships.

 Corporation: Corporations are entities in and of themselves. Unlike the two previous organization types, corporations are separate from a person, and they are taxed as such.  In fact, in some cases corporations get taxed twice (once on income and again on distributions to shareholders). The benefit of a corporation is unlimited lifespan, the ease of transferring ownership, and limited liability.

 Hybrid Organization: There are also several types of hybrid organizations such as the S-Corp or the LLC, which offer some of the benefits of several classes of organizations.

 Thinking of Setting Up a Business?

 If you are considering setting up a business of your own, consult with an experienced business attorney early in the process. The beginning stages of a business are often the most important, and failing to receive advice from the start is where many mistakes are made. Contact the Gierach Law Firm today for a free consultation.