Choosing a business structure is typically the first thing potential business owners think about. This step is essential, as it affects how a business is named, how and when it files taxes, and what its legal responsibilities are. Determining the best legal form for your business is fairly straightforward.
A limited liability partnership, or LLP, should be established by businesses with two or more owners who want the similar limited liability benefits of having an LLC while retaining the efficiencies and flexibility of a partnership.
Establish a limited liability corporation, or LLC, if you want your business to be a separate entity from your personal legal identity. Your personal assets (house, car, belongings, etc.) will not be at risk should something happen to your business.
Corporations, either "S" or "C" type, should be formed by businesses that want to sell stock and have shareholders. Corporations tend to have higher taxes to pay than other business structures, and they go through a lengthier process to become official, as opposed to LLCs, LLPs, partnerships, and sole proprietorships.
Make your business a sole proprietorship if you want a low-cost option, do not mind if your business identity is not separate from your personal legal identity, and are just starting out. This is the riskiest option, however, since if your business goes bankrupt or is sued, you will be legally and financially responsible--your personal assets are at stake. You can change a sole proprietorship into a different structure later.
A joint venture should be established if two or more people are going into business, but for a limited time only. This is only an option for those doing business for a specific project, as they will need to file for a general partnership or LLP if the work is ongoing.
Establish a general partnership if your business will have two or more partners, you will be starting a retail or service business, and you want a choice as to whether or not all shares and responsibilities will be divided equally. General partners can form an agreement to split shares as they wish, and only have to divide them equally if their agreement does not specify otherwise.
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