Starting your own business is an exciting time when you plan how to turn a gem of an idea into a profitable enterprise. One major step in the business formation process that entrepreneurs in Massapequs need to consider is what structure to give their business. The following is an overview of some common business structures.
A sole proprietorship has only one owner — you. It is perhaps the simplest business structure as it involves no other owners and it generally does not need to be registered with the state; it is only subject to any necessary professional licensing such as a liquor license. However, sole proprietorships are not separate business entities for liability purposes, meaning that the owner is personally liable for the obligations and actions of the business.
Partnerships are perhaps the simplest way that two or more individuals can own a business together. Two types of partnerships include limited partnerships (LP) and limited liability partnerships (LLP).
In an LP, one partner has unlimited liability, while the rest of the partners have limited liability and control over the business. The terms of an LP are documented in a partnership agreement. Profits from the partnership must be included on the partners’ income tax returns and the general partner also is responsible for paying self-employment taxes.
LLPs, unlike LPs, give all partners limited liability meaning they are not responsible for the actions of other partners and are protected from being liable for the partnership’s debts.
Limited liability companies
A limited liability company (LLC) offers the benefits of both partnerships and corporations. Owners of an LLC are not personally liable for the actions and debts of the LLC. LLC profits and losses are not taxed like corporations are but get passed through the owners’ personal income. However, owners of an LLC generally must pay self-employment tax. In addition, depending on state law, if an owner joins or leaves the LLC, it may have to be dissolved and re-established.
Choosing the business structure that is right for you
What business structure you choose may depend on how many people want to own the business and what kind of liability you want. There is no one-size-fits all business structure. For this reason, many entrepreneurs looking to form a business seek legal guidance, which this post does not provide.