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The first real step towards creating a business is choosing which kind of business structure is most appropriate for your situation and needs. You can start by asking yourself these questions:
If this is the case, a sole proprietorship would likely be the best option moving forward.
If this is the case, a partnership is probably the best option. If your partner handles daily business operations, you should lean towards a standard partnership. If they’re just investing in your business, you could choose a limited partnership.
If you want to create more of a divide between your business and personal finances in order to protect them, an LLC might be the right structure for you. Flexible and simple to set-up, LLCs are a very common business structure for a lot of businesses, especially online businesses.
If your business is already up-and-running and well-established (with multiple employees and various locations, or if you plan to issue stock, you’ll want to form a corporation.
If your company is being founded with a mission towards helping others, you should consider a benefit corporation or a nonprofit corporation. If your company is focused on giving back to the members that use and support it, a co-op structure may be the way to go.
Now that you have an idea of what sort of business structure can benefit you, read below for more information on each:
A sole proprietorship also referred to as a sole trader or a proprietorship, is an unincorporated business that has just one owner who pays personal income tax on profits earned from the business.The main benefits to this structure are the fact that it’s easy and cheap to create and maintain. However, one of the biggest drawbacks is that there is technically unlimited liability when it comes to the company’s finances.
However, depending on what you sell and where you’re located, you may still need local permits or licenses. Since the permit requirements and costs vary by city, check with your local Small Business Administration (SBA) office or city hall to get the correct permits. Typically, getting these permits are no more difficult than filling out a form and paying an application fee—usually about $50-$100.
A business owned by two or more people who share responsibilities and liability. With a partnership, you and your partner(s) will need to draft and sign a partnership agreement. This document should include how much each partner will invest and their rights and responsibilities.
In this business structure, the General Partners run the day-to-day operations, while Limited Partners’ sole role is the fact that they invest in the company. Limited Partners have no power when it comes to how the business is run, but invest in the company, hoping to make a profit once the business is successful.
Somewhat of a mix between a partnership and a corporation, with less regulation and no liability so no personal property at risk. If your goal is to keep your business and your business assets separate, an LLC is a simple business structure that works well for a wide variety of businesses. LLCs are easy to register and also give you various tax benefits, which can be a very important factor to consider.
An independent business with its own shareholders. This business structure is mainly suited for well-established businesses with various employees. This business structure is rare for online merchants, especially those who are just beginning their operations. If you’re looking to start a corporation, read this guide for more information.
A business whose mission is charity. This is the only structure included on this list that is eligible for tax-exempt status, but the application requires that the corporation meets certain strict criteria.
A business operated and owned with the purpose of benefiting the members of the organization that use its services with no external stakeholders. This type of business structure is also rare for online businesses, although some do exist.