11 Tips on How to Successfully Start a Small Business
Determining and registering your business structure is an exciting time- your idea is now becoming a legal reality. It’s an important step and you must choose your legal structure wisely.
The U.S. has twelve different business structures. Each entity has its own legal requirements that directly influence your setup costs, how you’ll run your business, which state laws apply, how you’ll file your taxes, and your level of legal liability.
However, small businesses generally use the following four business structures: Sole proprietorship, general partnership, limited partnership, and limited liability company.
Sole proprietorship is the default to starting a business. You can start immediately by using your own name and obtaining the required permits, licenses, and adequate insurance coverage. You’ll find what you need on your state’s website.
General partnerships are similar to sole proprietorships, except it has multiple business owners. Each person actively operates in the business, as well as share the profits and losses of the business.
Limited partnerships (LP) are a partnership between those running the business and a silent investor. Traditionally, silent investors have no day-to-day involvement in running the company. LPs are a good entity option for raising capital investment while retaining the simplified taxation of a general partnership.
But an LP is complicated to set up and requires state-by-state research. And any limited partners’ investments and shares are considered by the law as securities, subjecting them to state and federal security regulations.
NOTE: If you use one of the above structures and your business is sued, or you wind up in debt, you’re liable, and so are your personal assets.
Limited liability company (LLC) is one of the most common business structures for small businesses. It is a good choice if you’re trading in medium to high-risk niches, such as construction or adventure activities, as you’re not personally liable for the business. However, the setup and running costs are more expensive. You’ll need an accountant to register and file on your behalf.
Some business structures have their own tax and registration requirements.
I’ll explain next.