{photo by Alberto Mari. Now that's what I call structure!}
One of your first decisions as you start your business will be to decide how you'd like to structure your company. So actually, first, you need to start thinking of yourself as a company and then as one that has structure. :)
Even if you're making hand-sewn brooches in the corner of your living room, if you're looking to turn that into a legitimate business, it's time to start thinking like one. Here are some simple rundowns of the different business structures available to you:
Sole Proprietor
You will more than likely start your business out as a sole proprietor. It's the most common choice for an individual who is running their business solo, without any employees. It's the easiest business structure to get started with, doesn't require any special legal filing. Basically, you'll just start your business and come tax time, file a schedule C claiming business expenses along with your 1040.
As a sole proprietor, you own the business and you are the business. You are individually responsible and held liable for all its assets and profits (which will hopefully come down the road, someday :) and also all its expenses and debts.
Partnership
If you're starting the business with two or more people, you'll form a partnership agreement that specifies each of your responsibilities, how profits will be shared and what will happen if one partner decides to call it quits or another would like to join. There are a couple different types of partnerships:
- General Partnership: Partners divide responsibility and profits as per their agreement. Equal shares are assumed unless otherwise specified in the agreement.
- Limited Partnership: Limited partners are more like investors or financial backers- they share in profits and loss dependent to their investment, but have limited liability and responsibility for the business' actual operations or how it is managed. (Not common with retail or service businesses, you probably don't need to think about this one.)
Limited Liability Company or LLC
A Limited Liability Company is a newish structure that appeals to many small business owners, as it reduces your personal liability and defines you and your business as separate entities. You are not personally responsible for business debts and liabilities as you would be in a sole-proprietorship or partnership. If you were to be sued, for instance, your personal assets (personal savings, home, car, etc) would be protected and the suit would only affect specific business assets. There can be single or multi-owner LLCs. You need to file formal paperwork, pay a filing fee ($100-800 depending on state) and create a formal operating agreement.
There are also Corporations and S-Corporations, which I didn't get into as they're a bit "larger" than what most of the readers of this blog would need, but for more information on all business structures, and to help decide which one may be best for you, head to:
This is just to serve as a guide for you to get started in your research of what's best for you and your own company. I am a sole-proprietor myself, in case you're curious!
Next week for BIZ basics, we'll look at the other things you may need to get started, such as licenses and permits, tax ids, resale certificates and other fun stuff!
