One of the first decisions you have to make when you start a business is what structure you’re going to use to establish your company. For start-ups, the three most common choices are a limited liability company, partnership, or sole proprietorship.
There are a few things that you must think about when you’re trying to determine what’s best for your new company. Understanding how each point can impact your business is important.
Who owns the company?
If you’re going to open a company alone, you can choose a sole proprietorship or a limited liability company. If you’ll have a partner, you can use a limited liability company or a partnership. In some cases, a corporation might be a better option than any of these, but it’s a more complex structure.
What liability protection do you need?
A sole proprietorship doesn’t offer any protection for your personal assets. If your business is sued and you have a sole proprietorship, the person can stake a claim to your personal possessions if their lawsuit is successful. A partnership doesn’t provide any protection for personal assets either.
A limited liability company protects your personal assets. A person can only lay claim on your business assets, not your personal ones. This means you can walk away with your personal belongings even if your business assets aren’t enough to cover the award for the person.
There are also other considerations, such as the way taxes are handled. Before you establish the legal structure of your business, make sure you understand everything about what protections and responsibilities you’ll have.