The next decision in the setting up your business will the legal structure. the common ones are sole proprietorship, partnership, public limited company and the new formats like LLC and LLP, standing for Limited Liability Company and Limited Liability Partnership respectively.
The decision that you make regarding the legal structure will decide the taxes that you pay on the business. Typically, the nature of the business and the size of the start-up will automatically suggest the legal structure that you establish for it. Foe example, if you are starting with a small business on your own, you will probably go with a sole proprietorship. You may also choose a corporation format for your business. If you have a partner you will usually not have the option to go with a sole proprietorship. You will choose the partnership option or go with a Limited Company structure.
When choosing the legal structure of your business you must consult a reliable account and an attorney to understand the tax repercussions of the different legal structure and which one is the best choice for your business. Your business needs will be of the maximum importance when choosing the legal structure. Besides, you can change the legal structure of the business when the business evolves of changes in the future. For example, you can start with a sole proprietorship and change to a partnership if you happen to take on a partner in the future. You can also from a private limited company to a public limited company. Many businesses make this change somewhere in the course of their lifespan.
Each form of legal structure has its own advantages and disadvantages.
For example, with a sole proprietorship you only file your taxes once on a year along with your personal IRS returns and you can offset any loss in the business in your personal income. With a limited company, you do not bear any liability for the business losses and your personal assets and resources stay protected from from business liabilities.
We will discuss each of these legal structures in the next posts so keep reading.