Different Types of Business Structure
One of the most important parts of starting your business is choosing the right business structure. There are several different options, and it’s important to make sure you choose the right one for you, as different structures create different legal and tax implications. Here’s an overview of the different types of business structures.
This is one of the simplest business structures. It involves one sole owner of a business and doesn’t require paperwork or the payment of any particular fees. In terms of legality, your business and yourself are essentially the same thing. You pay personal taxes on anything involving your business, and you are personally liable for anything that might go wrong.
A Partnership is usually chosen as a business structure if one or more people are involved in the business. There are options for general partnerships and limited partnerships, which should be decided upon with your business partner(s).
- General partnerships involve one or more people who will equally contribute to the business, and share the profits and losses, making them each personally liable.
- Limited partnerships involve general partners and limited partners. General partners in a limited partnership work the same way, but they interact with, and sometimes recruit, limited partners. These limited partners are not personally liable and are not involved in day-to-day operations of the business. They also engage in profits and losses, but only typically to the extent of their personal investments in the business.
Limited Liability Company or LLC.
An LLC is a type of structure that shields you from personal liability, unlike a sole proprietorship or a partnership. It provides, exactly like it stands for, limited liability. Similar to a sole proprietorship, an LLC is not a separate entity, and personal income taxes are paid for any profits from the business.
A corporation is a bit more complex than the other types of business structures in that it creates privileges and liabilities beyond an individual. It becomes its own entity and pays its own taxes.
A nonprofit is exactly that; a business that doesn’t work toward or for profits. Rather, it works to further goals and ideas as an entity. A nonprofit is typically put into place to raise funds for a cause, and the money collected is often not taxed.
When it comes to choosing the right structure for your business, GROW is here to help! While these are just basic explanations of the different options, there are several layers to business structures and we’re happy to answer any questions you may have. Many of these structures can be obtained for free with some online savvy assistance. Ask us how and contact us for more information! You can also attend one of our many different classes to learn more about starting and building your business. View our events calendar here.
You can also find more online information from the Small Business Administration at sba.gov.