When you want to start a business you will have a number of different business organizations to choose from. You will need to step up your business to align with your company’s service and goals. There are certain aspects of a business that will determine which business you will fit under. There are four major types of business organization forms such as a sole proprietorship, partnership, corporation, and LLC. Mark Dicus & Company would like to break down the different types of business organization forms to help you find the right one for your business.
One of the most common forms of business is the sole proprietorship. A sole proprietorship is a business that is owned and run for a person’s own benefit. The business existence is entirely dependent on the owner and the decisions they make for the company. Some of the advantages of a sole proprietorship is that all of the profits are subject to the owner. A sole proprietorship also has less regulations that they must follow. The owner has total control of the business which makes running the business more flexible. Additionally, when starting a sole proprietorship business there are less requirements to obtain a business license. However, where there is the advantages there are some disadvantages. One of the disadvantages of a sole proprietorship is that the owner is liable for 100% of the company’s debts. The equity that can be put into starting a business begins and ends with the owner as well. It can also be hard to transfer ownership of a business.
A Partnership form has to categories, General Partnership and Limited Partnership. Both types will involve one or more owners investing their time, labor, and money into running the business. A general partnership means there is an equal share in all of the responsibilities. A limited partnership is when there is a formal agreement of responsibilities. Some of the benefits of a partnership is that you are not alone. You and the other person both put forth time, labor, and money into running the business. Debts and profits are shared and the running of the business is fairly flexible. Some of the downsides of a partnership is that the other person can drag down the business and make poor decisions that affect you as well. A partnership based business also means that if one person quits the entire business goes down with them.
A corporation often has many shareholders. A corporation has a number of benefits, and one is that the owner will have limited liability of the company’s debts and losses. The profits and losses essentially belongs to the corporation. Personal assets cannot be seized when a business has debts. If needed, a corporation can easily transfer ownership. Some of the disadvantages of a corporation is that they tend to be bigger and more costly. It costs more time and effort to start a corporation and sometimes, a corporation can be taxed twice.
LLC (Limited Liability Company)
An LLC is much like a combination of a limited partnership and a corporation. Some of the advantages of an LLC is that the liabilities and debts only effect the company and not the owner personally. All of the profits from the LLC are shared among all of the owners with double taxing. However, each state has their own laws on an LLC and ownership of the LLC may be limited. Agreements between all of the partners can be, at times, complex. This is why it is best to always have written agreements. Starting an LLC also can be expensive at first as there are often legal fees and filing fees along with getting the business license.
Tax Preparation, Filing & More in Salt Lake City, St. George, West Valley City, Provo, Orem, West Jordan & Greater Cedar City, Utah
When starting a business you will want to know you are filing under the right business type. For help managing a new business accounting, bookkeeping and more contact Mark Dicus & Company today.