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Choosing the Right Structure for Your New Business

Posted on in Business Law

Lombard business law attorneys, new businessStarting your own business means making a lot of tough and important choices. One of your first choices will be deciding how to structure your business—meaning, you need to determine your business’s entity. Interestingly enough, this is also one of the most critical decisions you make; how you and the business will be taxed, your personal liability, and even the type and amount of paperwork you will be required to do will all be based upon your company’s structure. How do you decide? The following can help.

Sole Proprietorships

A sole proprietorship is one of the most common business structures, partly because it is the least complex to start, form, and run. There are some pretty major limitations and pitfalls to this structure, however. For example, a sole proprietorship can only have one owner. As the business owner, you also assume responsibility for all financial obligations and taxation for the business. If you make a mistake, you really do not have anything to fall back on. If the business goes under, you may be required to file for bankruptcy to avoid complete financial devastation.

Partnerships

Partnerships are single businesses with at least two owners. Each partner contributes to the company through time, energy, resources, and skills. Partners also share in the profits and losses of the business, and each is held liable for any debts that the company may owe, should it suffer a loss or go under.

Still, partnerships are considered highly beneficial for companies with two or more owners because the business does not pay taxes on itself. Further, it is a low-cost and fairly easy structure to establish. Partnership options include:

  • Limited Partnerships (also known as partnerships with limited liability);
  • Joint ventures; and
  • General partnerships.

Corporations

Of all the types of business structures, corporations are usually the most complex. They typically require additional paperwork, the business and shareholders may both be taxed, and they can be expensive to start up and maintain. Yet most who choose a corporation entity do so because of the limited liability.

If the business goes under, or suffers from financial troubles, the personal assets of shareholders are not generally at risk. Further, a corporation entity is often more appealing to potential employees, should the company need them. They also have the ability to generate stock, which can help to mitigate some of their costs.

Limited Liability Company

Though still a fairly new business structure, limited liability companies (LLCs) have grown increasingly popular over the last several years. Essentially a hybrid structure, LLCs offer the flexibility of a partnership while still providing the tax benefits of a corporation. Hence, shareholders are not taxed as a separate business entity—profits and losses are “passed through” each partner’s tax return—but they are not held personally liable for the company’s debts, should it go under or run into financial troubles. There are some drawbacks, including the possibility of having to dissolve the business if a partner leaves, and the cost of self-employment tax. Still, it is possible to mitigate against at least some of the risks. An attorney can help.

Contact Our Illinois Business Law Attorneys

When choosing the structure of your business, there are many aspects to consider. Ensure you have weighed them all by contacting A. Traub & Associates for assistance. Our seasoned Arlington Heights business law attorneys will examine your situation and provide you with the information you need to make a sound business decision. Call 847-749-4182 to schedule a consultation at one of our three convenient locations.

Sources:

https://www.sba.gov/starting-business/choose-your-business-structure/corporation

https://www.sba.gov/starting-business/choose-your-business-structure/sole-proprietorship

https://www.sba.gov/starting-business/choose-your-business-structure/limited-liability-company

https://www.sba.gov/starting-business/choose-your-business-structure/partnership

Illinois State Bar Association DuPage County Bar Association Northwest Suburban Bar Association American Inns of Court DuPage Association of Woman Lawyers National Association of Woman Business Owners
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