In June 2021, 3.9 million people made a giant leap and quit their jobs.
Many of the people participating in the “Great Resignation” have decided that it is time to take full advantage of their skills and lead their own business.
Developing a passion project into your own business can be one of the most rewarding professional experiences you can have. But there is a little more to a successful business than passion.
Knowing how to set up a business correctly is crucial to success. One of the first steps is to investigate legal business entities to determine which is best for you.
Here are different ways that you can arrange your business structure to set yourself up for success.
Sole proprietorships and partnerships are the most basic type of organizations. A sole proprietorship is composed of one person, while a partnership has two or more. It is the simplest type because the business does not need to register with the state.
Taxes are easier to file as they are combined with your personal taxes. However, this setup has wider financial implications. You are responsible for all debts of the business.
There are further legal implications as well. If someone sues your business, you are personally liable and can lose personal assets if you lose the suit.
While this is the easiest business structure to set up, you should approach it with caution due to possible liabilities.
One way to reduce your risk exposure is to set up a corporation. If your business faces financial issues or potential lawsuits, you’ll be protected. These challenges will not affect your personal finances.
What’s the catch? Corporations are more costly to register, and they require formalities like having board and shareholder meetings. The taxes can also be more complicated, resulting in double taxation.
Corporations are a good solution for large, complicated organizations.
Limited Liability Company
An LLC, or limited liability company, combines some of the features of sole proprietorships and corporations. You can set up a sole member LLC so you still control the business. However, you are not personally liable for losses of the organization.
There are several benefits of an LLC over a corporation as well. While there is a fee to register the business with the state, it is less expensive than a corporation. It also requires far fewer formalities than a corporation.
Forming Legal Business Entities
Each type of business structure has different pros and cons that you should assess for your business. Setting up a business and comparing legal business entities can sound challenging. But if you take the process one step at a time, you can set yourself up for success.
Business ownership requires an entrepreneurial spirit of curiosity. Check out our other articles for business advice and to stay on top of the latest trends. Your business will be soaring in no time!