Types of Structures to Consider When Starting a Business

Types of Structures to Consider When Starting a BusinessWhen deciding to form a business, there are many different organizational structures to consider depending on your business needs.  These structures will be different in regards to taxation, management, debt responsibility, financial benefits, and legal requirements to form.  It is just as important as finding out what your business will sell, because it has ramifications to the business’s success or failure.

The easiest type of structure to form is the sole proprietorship.  Legally, the individual who owns the business is the business.  The business owner owns all the business’s assets, receives all profits and is responsible for all debts incurred by the business.  The business also ceases to exist once the owner dies.  There is no legal restriction concerning public or private investments, but it is generally more difficult to raise capital for a sole proprietorship.  Other business structures have more security for investors.

There is another easy structure to form called a Limited Liability Company or LLC.  The possibility for multiple owners in this structure of business makes it more difficult to manage, but has the benefit of limiting the legal responsibility for debts accrued by the company.  There is also flexibility in how this formation can file taxes.  Depending on what most benefits your company, their taxes can be filed as a partnership, corporation, or sole proprietorship.  Some states make up for this wiggle room by levying taxes such as a franchise tax or a capital values tax.

The other popular business formation is an S Corporation, which is for small businesses with less than 100 owners.  The shareholders or owners of the business are still personally protected for the debts accumulated by the company.  The owners also benefit from the absence of “double taxation” at the business and individual level.  The disadvantages that stand out for an S Corp are mostly restrictions and qualifications that are imposed by government agencies such as the IRS.  The Internal Revenue Service closely monitors S Corps and the government requires fees as well as the services of a registered agent.

Whenever you decide that you have a service or a product that would necessitate the formulation of a business it is necessary to lay some groundwork first.  The benefits of lessened taxes, increased management flexibility and other benefits will definitely influence the structure of your business.  Prior to doing anything that is costly or irreversible, contact a reputable business attorney in Naperville to sift through the vast benefits of incorporation.