Every big business founder started small, filing a form to start a company. No doubt, starting a business for the first time can be scary. Will it fail? What if it attracts lawsuits? Or, what if you can’t deal with all the responsibilities? These are just some of the concerns new entrepreneurs often have.
Yet pushing through and becoming a business owner can have many rewards – you’ll be your own boss with your own work hours and you’ll do whatever you like(let’s hope it’s legal and profitable, though). Before starting any business, you should become intimately familiar with different types of business entities to figure out one that’s most to your liking. Here are some common types:
Most family businesses and similar small enterprises will fall in this category, especially when a single person is doing the bulk of operations. Sole proprietor businesses are simple and easy to run – you won’t encounter many complications if you file your taxes and avoid legal calamities. The latter is important, as any lawsuit against the business will essentially be a lawsuit against the owner(you) no matter how many employees you might have, and your assets might get frozen and/or seized as a result.
Limited Liability Company(LLC)
The ‘next step’ in terms of business ownership, running a LLC business is a bit more complicated but with a few notable benefits over sole proprietorship. For one, even if you’re the sole owner, your personal assets will be safe from any legal action against the company. LLCs also let you have any number of owners without requiring you to host a certain number of meetings like other business types might. Aside from protecting your personal assets or wanting to share ownership, you might also want to start a LLC over a sole proprietorship or partnership in order to seem more like a legitimate enterprise and less like a family-run venture.
Who doesn’t want their business called a ‘corporation’? As appealing as this might be, running a C-corp is a bit trickier than a sole proprietor business or even a LLC. C-corps have an entire hierarchy consisting of directors, shareholders and various other positions in the ranking system, and they also mandate a certain number of annual meetings. While a C-corp will do wonders for your credentials, has no limits imposed on growth and exists even if the original owner leaves, there’s also a major drawback. C-corps suffer a kind of double tax wherein taxation is applied to earnings as well as dividends of your shareholders.
If the words ‘double’ and ‘tax’ used in conjuction give you a headache, an S-corp might be more to your liking. Unlike a C-corp, an S-corporation taxes its shareholders more than it does the company. It also lets the owners file tax returns only once a year. As is the case with the C-corp, S-corporations also separate owners’ and shareholders’ personal assets from the company. Additionally, it provides additional credibility to owners when compared to a standard LLC.