What is the Best Legal Structure for My New Business?
When it comes to setting up the legal structure of a new small business, there is no one-size-fits-all solution. As the founder of the business, you will be considering one of three legal forms–sole proprietorship, partnership or corporation–depending on answers to questions such as these.
The greatest disadvantage to a sole proprietorship is that your personal assets and those of your family are not protected. Should there be financial problems or a lawsuit, your assets are at risk. Additional insurance will help minimize the risk and cover liability up to a certain dollar amount; however, you also assume greater personal liability.
With more than one owner, the business can form as either a partnership or a corporation. Partnerships come in two varieties: general or limited, both giving all partners a say in the decisions. General partnerships do not require a formal written agreement, although not having one would be a serious mistake.
Limited partnerships do require a formal written agreement, and also require the filing of a certificate. The general partnership stipulates that all partners have unlimited personal liability, but in a limited partnership, partners typically are liable only to the extent of their investment.
There are different types of corporate structures. A regular corporation has government control and reporting requirements. Corporate earnings are subject to double taxation: first profits, and then the shareholders' earnings through dividends. However, an S corporation provides the limited liability of the regular corporate structure, and earnings are taxed to individual owners at their individual rates. A limited liability company offers the benefit of limited liability without being as complex as a corporation.
However, no two situations are identical, so before you decide on your form of business organization, consult your tax advisor and attorney.
If you have questions about this or other business subjects, call SCORE at 757-229-6511 or e-mail info@SCOREwilliamsburg.org to arrange for a free and confidential appointment. The Williamsburg SCORE office is located in the Williamsburg Chamber and Tourism Alliance Building at 421 North Boundary St.
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