The Best Business Model For You

From the Blog

The Best Business Model For You

Being an entrepreneur is great-but you still need a business structure to run your business under. Without the business structure set-up you cannot get the customer the product and collect the money from the sale of your products. Choosing the right business structure is also important for the other side of all business-government regulations, taxes, and potential lawsuits.

Sole-Proprietorship:

Sole proprietor is a legal business structure in that there is no difference between the individual that owns the business and the business itself. The owner is responsible for every aspect of the legal requirements of the business including the debts, loans, assets, and taxes for the business. the individual is also in direct control of all the elements of the business and does not have any partners. The owner gets all of the profits of the business and must pay the taxes as well.

Establishing this type of business is pretty easy-you need a name or use your name-file a fictitious name statement (if using a made up name)-file the statement and publish it in a local paper. You then take this proof and get a business bank account-probably pay a fee for a business license in your city and viola-you are in business. Super easy can be done in less than a week-that is the upside.

Here is the downside-unlimited liability for everything that happens within the business. You are responsible for the business debts, taxes, and any lawsuits that could happen stemming from your business activities. You could lose everything you own-including your house if you own one-not the best case scenario that is for sure. It is also harder to get financing, loans, and other businesses to do business with you. That is a large downside to be sure.

So simple to set-up, a lot of liability, easy to manage, and easy to shut down if needed. Might be a good choice just to set-up something and collect some revenue. You can read all about it here: http://en.wikipedia.org/wiki/Sole_proprietorship and especially here: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Sole-Proprietorships

index-llccorp

S-Corporation:

-An S corporation, for United States Federal income tax purposes is  a closely held corporation that makes a valid election to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code. In general, S corporations do not pay any federal income taxes. Instead, the corporation’s income or losses are divided among and passed through to its shareholders. The shareholders must then report the income or loss on their own individual income tax returns.(1)-

If you do not completely understand all of the above-you are not alone-starting a corporation is a lot more complicated then the previous business entity. As a start go to here to get an overview of it all: http://en.wikipedia.org/wiki/S_corporation and especially here: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/S-Corporations

There are a lot of extra things required to get into this business entity and takes a lot more work to manage. On the other hand-you have some protection of your personal assets versus the sole proprietorship business model. The corporation is responsible for the debts, loans, and other liabilities of the business-not the individual. This business model is very attractive for a whole hosts of reasons and should be seriously considered for the long range life of your business.

LLC-Limited Liability Company

An Limited Liability Company (LLC) is in my opinion the best option for small company entrepreneurs. It has some of the best of both worlds between sole proprietorship and an S-Corporation.

-A limited liability company (LLC) is the United States-specific form of a private limited company. It is a business structure that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation. An LLC is not a corporation; it is a legal form of a company that provides limited liability to its owners in many jurisdictions. LLCs do not need to be organized for profit. In certain U.S. states (for example, Texas), businesses that provide professional services requiring a state professional license, such as legal or medical services, may not be allowed to form an LLC but may be required to form a very similar entity called a Professional Limited Liability Company (PLLC)(2)-

Reviewing the above, you can see that the LLC is a very good business structure for the aspiring entrepreneur. Of course, you state will have different rules and fees for setting up the LLC-but I think it is the way to go personally. The are many advantages and disadvantages to an LLC. These can be found here: http://en.wikipedia.org/wiki/Limited_liability_company and especially here: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Limited-Liability-Company-Possible-Repercussions and http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Limited-Liability-Company-LLC

Conclusion:

No matter what business structure you choose when you start a company-you have to choose something. Like everything else in life-your choice affects certain outcomes and some choices are better than others. Do your homework and choose what is best for you. One good thing about business in America-is that if you do go belly up-you can always start again in a different business adventure-one of the truly great things about our country.

For my money-the LLC structure is the way to go-and should be looked at in depth by those you are taking the chance into entrepreneurship.

THIS YOU CAN TRUST

(1) Wikipedia

(2) Wikipedia

FAIR USE NOTICE. This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of economic, scientific, and engineering issues, etc.. We believe this constitutes a ‘fair use’ of any such copyrighted material as provided for in section 107 of the US Copyright Law. If you wish to use copyrighted material from this site for purposes of your own that go beyond ‘fair use’, you must obtain permission from the copyright owner.