The most important factor when starting a business is choosing the right business entity. There are different business structures such as a sole proprietorship, partnership, limited liability corporation (LLC), and a corporation that a business owner can choose from. Making the right decision would depend on the type of business that an individual owns if there are more than one owner, the way the owner chooses to run the business and the financial position of the business. Finding the right structure one needs to have an understanding of how each one is formed, the personal liability for the owners, taxation, and the advantages and disadvantages of each structure before choosing which structure best fit for the business.
Steps to Form
The sole proprietorship is the least expensive to form. However, there are permits and licenses for the business. These are usually determined by the state and what type of business you are in and the locality of the business. The name of the company that is chosen must be one that is not already used by someone else (Choose Your Business Structure, 2013). If the owner is forming a business on a regulated financial plan or a firm framework, this would be the one to choose from. If there is going to be only one owner, the sole proprietorship would be the one to use.
If there is going to be more than one owner, the partnership would be the best one to choose. The partnership is a structure that has more than one owner and each partner participates in all aspects of the business, such as property, labor, money and skills. Both partners also shares in the losses and profits of the business (Rogers, 2012). A partnership contract should be made to establish how future decision making...
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...the shared and individual liability. The partners are liable for their own actions and business decisions, debts and decisions that other partners makes. The personal assets of all partners can be acquired to pay for the partnership’s obligations (Mancuso, 2015).
The LLC has the limited liability, meaning that the members are not responsible for personal liabilities for the actions or decisions the LLC creates. For example, if the limited liability corporation has debt obligations and they go to court the member’s personal assets are relieved. However, members are not automatically protected from wrongful acts, as well as actions by their employees (Mancuso, 2015). The liability of the corporation is the same as the LLC. However, in the corporation, shareholders can be held liable for their investments in stock of the corporation.
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