There are different entities a new business owner can choose from
when beginning their business. However, how they choose to run
their business will and can determine which one is a better option for
them, their business, and any partners they choose to go into
business with if they choose that route.
Sole Proprietorship:
"A sole proprietorship is easy to form and gives you complete control
of your business. You're automatically considered to be a sole
proprietorship if you do business activities but don't register as any
other kind of business" (SBA p4). This option is best for an owner
that plans on going into business with no one else and just themself.
This option does not allow the liability and assets be separate from
the personal assets and liabilities therefore, the owner can be held
responsible for any debts and obligations that come from the
business. It can be hard to obtain business loans from a bank or raise
money on behalf of the business due to the inability of creating and
selling stock. However, this is a great option for business owners that
are "testing the waters" in running a b business. The taxes are paid as
self-employment tax or personal tax.
Partnership:
"Partnerships are the simplest structure for two or more people to
own a business together. There are two common kinds of
partnerships: limited partnerships (LP) and limited liability
partnerships (LLP)" (SBA p 7). This means a business owner may go in
on the business with additional individuals. Each business partner
may have unlimited personal liability unless it is structured as a
limited partnership. Alike the sole proprietorship the taxes are paid as
self-employment tax (except for limited partners) or personal tax.
Corporation:
"Corporations offer the strongest protection to its owners from
personal liability, but the cost to form a corporation is higher than
other structures. Corporations also require more extensive record-
keeping, operational processes, and reporting" (SBA p17). There are
many different types of corporations a business owner can choose
from, however, again it does depend on what will be best for the
owner(s) and the business itself. This options keeps all financials
separate from personal to business. Therefore, taxes are usually filed
as tax exempt, however, can vary based on the type of corporation
the business owner chooses.
Business Example:
I personally have a small crafting business that I sometimes do on the
side or whenever friends and family need anything. I choose to have
this business ran as a sole proprietorship as I am the only business
owner and I handle everything myself. The business is registered
under my social, therefore when I file my taxes I take full
responsibility and file the taxes for the business under my personal
taxes. This is because I am the only business owner, and not much
goes into running it or ensuring it stays afloat. I choose to use my
personal money, if needed, to continue running the business when I
choose.
References:
Choose a business structure. sba.gov. (n.d.). Retrieved February 5,
2023, from https://www.sba.gov/business-guide/launch-your-
business/choose-business-structure
