For more information, see the Select an Enterprise Structure in Small Business Administration Web page. A company is structured in such a way that it has a board of directors that makes the most important decisions that guide the company. A single person can control a business, especially when it starts, but as it grows, the need to operate it as a board-run entity also increases. Even for a small business, rules meant for large organizations still apply, such as writing down all the important decisions that affect the business. Another unique feature of companies is the way they manage profits and losses. Unlike sole proprietorships and partnerships, business owners (i.e. shareholders) do not receive direct profits and do not absorb losses. Instead, profits and losses indirectly affect shareholders in two ways. First, profits and losses tend to be reflected in the rise or fall in the company`s share price.
When a shareholder sells his shares, the company`s performance while holding the shares affects whether it makes a profit compared to its share purchase. Shareholders can also benefit from profits if a company`s management decides to pay cash dividends to shareholders. Unfortunately, for shareholders, corporate profits and dividends that support those gains are taxed. This double taxation is a major disadvantage for companies. Businesses (also known as C companies) are also the most difficult form of business to start and must comply with a number of regulations. You need professional legal advice to make this decision, but the first step is to learn what the different structures are, depending on your situation, long-term goals, and preferences. The legal form of the business is one of the first decisions a small business owner has to make. Since this decision will have long-term implications, it is important to consult a lawyer and an accountant to make the right choice. Here are some factors that small business owners should consider before making their choice:Karen Collins, Exploring Business (Irvington, NY: Flat World Knowledge, 2009), 90; „Small Business Planner: Choose a Structure,“ US Small Business Association, accessed February 3, 2012 archive.sba.gov/smallbusinessplanner/start/chooseastructure/index.html. There are two types of partnerships. In the partnershipA partnership consisting of two or more owners who contribute the initial capital of the partnership and participate in the profits and losses., All partners are fully responsible and each partner can enter into contracts on behalf of the other partners. A business format that may have multiple general partners and multiple limited partners who are not liable indefinitely.
has at least one general partner and one or more limited partners whose liability is limited to the money or assets invested in the corporation. Limited partnerships are typically found in professional businesses such as dentists, lawyers, and doctors, as well as oil and gas, film, and real estate companies. However, many medical and legal partnerships have shifted to other forms to limit personal liability. John M. Ivancevich and Thomas N. Duening, Business: Principles, Guidelines, and Practices (Mason, OH: Atomic Dog Publishing, 2007), 60; David L. Kurtz, Contemporary Business, 13th Edition Update (Hoboken, NJ: John Wiley & Sons, 2011), 163; William M. Pride, Robert J.
Hughes and Jack R. Kapoor, Business (Boston: Houghton Mifflin, 2008), 150. The structures discussed here apply only to for-profit businesses. If you`ve done some research and still aren`t sure which business structure is right for you, Friedman recommends consulting a business law specialist. One of the first decisions you need to make when starting a business is determining the right legal structure for your business. The legal form of the organization in the business plan is used to decide how the business operates, how roles are assigned, and how relationships work.3 min spent reading A final form of business is a limited liability company (LLC). The Canada Revenue Agency (CRA) continues to treat the LLC as a corporation rather than a partnership, resulting in traditional double taxation of Canadian investors. Canadians should be aware that U.S.
limited liability companies can be dangerous to their (tax) health. A limited liability company (LLC) is a hybrid structure that allows owners, partners or shareholders to limit their personal liabilities while enjoying the tax and flexibility benefits of a partnership. Under an LLC, members are protected from personal liability for the company`s debts unless it can be proven that they acted illegally, unethically, or irresponsibly in carrying out the corporation`s business. A limited liability company with some ease of running a sole proprietorship or partnership, but the owners are separate from the company`s liabilities Individuals in a partnership also claim their share of profits as personal income. Your accountant may suggest quarterly or semi-annual upfront payments to minimize the final effect on your return. Incorporation: Corporations are more complex entities to create, have more legal and accounting requirements, and are more complex to operate than sole proprietorships, partnerships, or LLCs. August 2008, accessed February 3, 2012, cnnmon.ie/MDaxXN. Ultimately, the LLC business structure is the best choice for most small businesses. Homeowners have the greatest flexibility, and there is a liability shield that protects all owners.
Annalyn Censky, „Business Structures 101,“ CNN Money, August 4, 2008, accessed February 3, 2012, cnnmon.ie/MDaxXN. A sole proprietorshipThe most basic type of business organization in which there is only one owner.
