Categories
Uncategorized

Common Business Structures

A Sole Proprietorship is a one-person business. There is no paperwork to fill out to accomplish this. The profit or loss from the business is carried to the personal tax return of Sole Proprietor. The Sole Proprietor is liable for all debts and other liabilities of the company.

A Fictitious Name Registration (DBA = doing business as) is required in most states. You must file your fictitious name registration before starting the operation of your business. In some cases, it must be filed within 30-40 days of your first business transaction. In addition, several states require that you publish your DBA statement in a local newspaper, and then file proof of publication with the proper government office. The purpose of the publication requirement is to ensure the public is informed of new businesses in the area, their legal name and ownership.

A Partnership has two or more people involved. The profit or loss is divided between the partners and carries to their personal tax returns. Each partner is personally liable for the debts or other liabilities of the company.

A Corporation is a separate and distinct legal entity. That means that a Corporation can open a bank account, own property, and do business all under its own name. Corporations are managed by a Board of Directors which is responsible for making major business decisions and overseeing the general affairs of the Corporation. Directors are elected by the Shareholders of the Corporation. Officers who run the day to day operations of the Corporation are appointed by the Directors.

The main advantage of the Corporation is that its owners, known as Stockholders or Shareholders, are not personally liable for any of the debts or liabilities of the Corporation. For example, if a Corporation gets sued or it is forced into bankruptcy, in most cases, the owners will not be required to pay the debt with their own money if the assets of the corporation are not enough to cover the debts. The creditor cannot, in most circumstances, go after the Shareholders, Directors or Officers of the Corporation to recover any loss.

Investors in business often risked everything they had if the new business turned bad. When the company was out of money and didn’t have the cash to pay creditors, the investors had to make up the difference with their own money. With the advent of the Corporation, investors could avoid this type of liability by forming a Corporation and as a result more people are more willing to invest their money in business ventures. The formation of Corporation as a business entity can help reduce your taxes but more importantly you can provide for peace of mind by protecting your personal assets.

Leave a Reply

Your email address will not be published. Required fields are marked *