Limited liability companies, often referred to as “LLCs,” have been around since 1977, but their popularity among small business owners is a relatively new phenomenon. Debnam recommends that any business partnership – regardless of the relationship of individuals – begins with a written agreement. “This ensures that the partners have the same vision,” he says. Every business unit is unique, but there are a few important questions you (or your lawyer) should ask yourself when deciding on your business unit. An example of a cooperative is CHS Inc., a Fortune 100 company owned by U.S. agricultural cooperatives. As the country`s leading farm business co-operative, CHS recently reported net income of $829.9 million for the fiscal year ended August 31, 2019. One of the advantages of a partnership is that, like a sole proprietorship, the corporation is not taxed. On the contrary, income, losses and profits are passed on to the general partners in accordance with the allocations provided for in the articles of association. A particular advantage of this business form is that shareholders can agree among themselves on how income, losses and profits are distributed among shareholders. However, there are a few drawbacks to consider.
Choosing the business structure for sole proprietorships means that you are personally responsible for your company`s responsibilities. As a result, you put your own assets at risk, and they could be seized to pay off a business debt or legal claim against you. A corporation is a separate entity from its owners for legal and tax purposes. Companies are incorporated by filing the articles of association with the Secretary of State. A corporation consists of three groups of people: shareholders, directors and officers. Shareholders elect the Board of Directors, which is responsible for setting the company`s key objectives and making important decisions. The Board of Directors appoints the senior executives who run the company on a day-to-day basis. This is a very common type of entity, although the paperwork and effort associated with the incorporation process may deter some small business owners. By setting up, however, you significantly protect your personal assets by creating an entity separate from you. When starting your own business, one of the first decisions you need to make is what type of entity to form.
The company you choose affects the amount of personal liability you assume, how you are taxed, how you are obligated to pay your employees, and more. Taking the time to think about the best option for your business is therefore an important step that you should never skip. When choosing a business unit, you should consider: (1) the extent to which your personal assets are threatened by liabilities arising from your business; (2) how best to use tax benefits and avoid multiple levels of taxation; (3) the ability to attract potential investors; (4) the ability to offer ownership interests to key employees; and (5) the cost of operating and maintaining the business unit. The right business structure can protect you from liability, support your business goals, and save you money over tax period. But how to choose? Here`s a quick guide to some of the most common business structures. However, this simple structure means that it is linked to your personal assets. This means that if the deal fails, you could lose your personal belongings and savings to pay off any remaining debt. You`ll likely have to pay self-employed tax on any profits you make, which could mean paying the government a significant portion of the profits made. Your best bet to maintain complete control while minimizing record-keeping obligations is to operate a sole proprietorship. While you don`t benefit from the separation of personal and professional assets associated with LLCs and corporations, you avoid the hassle of deep accounting. You also have the final say when making critical business decisions. In the case of a traditional corporation, you would cede significant control to the board of directors.
As a business partner, you must consult with the other owner, depending on your partnership agreement. As the name suggests, a limited liability company or LLC offers its owners (called “members”) protection from liability for corporate obligations. So if your LLC can`t pay its debts or isn`t able to meet its obligations, only the company`s assets — not members` personal assets — are at risk in a lawsuit. Members remain responsible for their negligence or personal misconduct. Despite the implication in the title of this article, you should not approach this topic with the idea that there is only one type of entity that suits your business. The decision you make inevitably involves weighing the pros and cons of several factors that apply to your particular business.