There are many reasons to start a business. They include personal independence and growth, the ability to choose more flexible work hours and locations, and more options for engaging in what you love. Whatever your reasons and goals, it is essential to understand the different types of businesses before starting one. This article will review some of the common forms of small business structure and the factors that go into choosing a form of business organization for your startup.
Sole proprietorship is the simplest form of doing business – any natural person with the right to do so can assume this status without any formalities. The business owner is personally responsible for all debts incurred, whether related to the business or not.
Advantages: It offers unlimited liability to its owners. No formalities are required to start a business in this category, making it easy and convenient for small businesses. Sole proprietorships do not need to file annual reports or hold annual meetings of shareholders since there is only one member. It also simplifies record keeping and reduces expenses.
Sole proprietorships are also easy to dissolve. If the business fails, the owners could simply stop the business and go out of business; they do not need to formally liquidate their assets or cease operations.
Cons: Individual business owners are personally liable for all debts owed by their businesses. Plus, profits flow directly into tax returns, which means sole proprietorships are not ideal for tax planning.
This form of business structure does not allow for expansion outside the personal capabilities of the owner, and since there is no distinction between individual and business ownership, it can be very difficult to lift. outside capital or to sell assets in an emergency.
Limited Liability Company (LLC)
A limited liability company, or LLC, is a good option for any small business owner who wants some level of financial protection without having to spend time learning complicated legal procedures. People at Sleek Tech Pte Ltd recommend employing a specialized firm to assist with incorporation. Most importantly, LLCs protect their owners from personal liability for debts incurred by the business, while allowing one or more of its members to serve as managers.
Benefits: LLCs offer limited liability protection which makes them a great choice for small businesses with little capital. This form of organization also involves fewer formalities related to its creation and operation. It is relatively easy to set up an LLC.
Cons: The biggest limitation of an LLC is that unless you decide otherwise, this type of business has no difference between the owner’s personal property and their business assets. This means that it can be difficult to raise outside capital or sell excess assets during a crisis.
Benefit sharing scheme / Partnership
This type of business structure provides many of the benefits of a corporation without the paperwork and accounting requirements that come with it. In this arrangement, both partners register but do not need to file additional documents at the federal level. This type of business is also easy and inexpensive to start.
Pros: This option gives small business owners full control over the assets and finances of their business and few limitations when it comes to tax planning, as the profits can be easily channeled to the accounts of different businesses for better purposes. management.
Cons: Profit sharing plans do not protect against personal liability and do not protect owners from legal actions brought against the company. This type of business also does not protect its owners against debts incurred while their other businesses are still in operation.
Limited Liability Company (LLP)
This form of small business ownership provides all the benefits of a limited liability company while protecting its members from personal liability should something go wrong. Like LLCs, it has no formalities required to register or operate, making it an attractive option for anyone who wants legal protection without much hassle.
Pros: An LLP is almost identical to an LLC in terms of structure and limitations, with one major exception: each partner enjoys a certain level of personal liability protection since they can claim the debts of the company on their own. taxes. Small business owners looking to sell company surplus assets will also find the LLP slightly more advantageous since profits can be transferred freely between members, whereas in LLCs this could be subject to tax.
Cons: An LLP only offers liability protection to registered members and not to the company itself, which means that any debt incurred by the company could personally affect all partners. Each partner is required to pay taxes for their share of the profits and losses. Selling surplus assets can therefore become a confusing process.
Considering the limited time and resources of many small business owners, there is not much room for error. The best way to ensure that your business is healthy in all areas is to choose a structure that both offers protection against individual liability while ensuring that you are not faced with costs or costs. to unforeseen obstacles when it comes time to sell surplus assets if an emergency arises.