How Should I Set Up Business Structure?

At some point each business owner will need to decide how to structure that business. There are many benefits to setting a business up whether as a sole proprietorship, a partnership, a limited liability company or a corporation. The manner in which you choose to structure your company is going to be as individual as that company itself, but realize that setting it up in a certain way will allow for certain tax or legal ramifications.

It is important to consult with a professional such as your accountant or attorney, if you can, prior to establishing your business's formal structure. For example, choosing to be a sole proprietor may be the best choice if you are operating a craft business from out of your home. As it grows, you can always opt for incorporating the company. Incorporating a business, like choosing business insurance, will cost money up front.

It may be that you are able to incorporate the company on your own, without the help of a professional like an attorney. In this case, incorporating would cost somewhat less. However, because of the complexities with filing the proper paperwork, and so on, you might want to stick with starting the company up officially as a sole proprietorship. The reason for choosing your structure carefully is mainly due to protecting the company from liabilities.

A corporation, no matter how small, allows any liabilities to be the responsibility of the corporation only. This means, if you alone are a corporation, any liabilities that are the business's can only be attached to the corporation. Your personal assets would be left alone. This is important to understand when making the decision as to how to set up the company right from the start.

For instance, if some other company or a former employee or client were to sue you, if you are a sole proprietorship, any judgments entered could be satisfied by your personal assets. If you are a homeowner, this means your home could become attached with a lien which would be placed to satisfy the judgment if your business did not have the funds to pay the judgment off. While instances like these are fortunately rare, they can occur.

Insuring your Business no matter the Structure

Instances such as the one illustrated above, are the reasons behind any type of business carrying proper business liability insurance coverage. However, the insurance is not the only way to secure the financial safety of the business. The particular structure which you set the company up from the start can have as much impact on sparing you, personally, from suffering financially due to any business issues.

Some structures such as a partnership will simply not apply as an option for you. Obviously, if you own the company by yourself, you cannot really form a partnership. You may want to consider forming a limited liability company. Again, the differences between this and a corporation are such that it helps to have a professional guide you when establishing the business. Limited liability companies can protect a company owner personally to some degree, but the specifics are something you will need to consider carefully before investing the time and money in choosing to become one.

Essentially, you will want to be very careful when setting up your business structure. Do not open your business without taking the time to form the proper set up, just as you would in selecting the proper insurance. Remember, the type of structure you choose can have an effect on your personal assets as well as impact the manner in which your taxes are handled.

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