Sole proprietorships are popular with freelancers, such as writers and designers, tutors, and child care professionals. This is the easiest form of business to start. Setting one up is inexpensive, and typically, licensing fees and business taxes are the only associated costs. Sole Proprietors Are the Easiest Business Structure to Form.
And they have the least amount of government regulation. In a partnership, creditors can seize any of the partners' personal assets to recover the entirety of the debt. It's different in a limited partnership, where only the general partners are personally liable for the company's debts, while the limited partners are responsible for the company's debts only up to the amount of their investment. More common among lawyers are limited liability companies, which limit the liability of partners for company debts, but still hold them individually liable for their professional activities.
There are also limited liability companies, a kind of limited partnership that extends limited liability to general partners, not just limited partners. Sole Proprietors, Joint Stock Companies, and Type S Joint Stock Companies are transfer entities, as are some limited liability companies. In a transfer entity, profits are transferred directly to the owners of the company. When it's time to pay taxes, it's reported on individual homeowners' returns.
Partnerships are generally governed by agreements that specify how the company's profits are divided between the parties and what happens when a partner retires, becomes disabled, goes bankrupt, or dies. This is the easiest business structure for new or small business owners, as it's cost-effective and there are no other stakeholders to consider when making decisions. According to the Small Business Administration (SBA), the popularity of the business structure varies depending on the number of employees, if any. In the worst case scenario, a business owner could find his house or car waiting to be repossessed for debts or for taking legal action against the company.
Becoming a sole proprietor may be the right choice if you're going to become a small business owner on your own and want a simple business structure. A fundamental decision for all new business owners is to select the legal business structure that is best for them. When considering starting a small business, you should think about what business structure is best for small businesses. Typically, initial expenses will include state and federal rates, taxes, leasing commercial equipment, office space, bank fees, and any professional services that your company hires.
Depending on the business structure you choose, your personal assets could be at risk if your company can't pay off debts. In the case of business structures that are not public limited companies, the initial procedures and fees are relatively light and simple enough for owners to manage without the need for special knowledge (although it is advisable to consult a lawyer or accountant for help). This legal business structure offers the most protection to business owners, but it is also the most expensive and intensive structure to establish and maintain. Gather all the information about business entities before deciding on the best business structure for your startup.
We have more than 20 years of experience helping startups and small businesses in the Chicago area with their business structures and all types of legal matters. If you've done your research and you're still not sure what business structure is right for you, Friedman recommends talking to a business law specialist. One of the most important decisions business owners must make is to determine if they choose a structure that involves incorporating their company.