When you’re starting a new business, one of the first things you need to decide is the right structure for your company. This is extremely important because it will have far-reaching implications on how you are taxed, how you can raise money, and what your exposure to liabilities may be. Here are the most popular business structures and their main features.

Sole Proprietorship

This is the easiest type of business structure to set up, although it’s not the right structure for everyone. In this type of structure, there’s no difference between the company itself and the owner of the business. You as the owner are responsible for all the business’s liabilities, debts, and losses, just as you’re entitled to all the profits from the company.

Partnerships

In this configuration, at least two people will share ownership in the company and each one will contribute some needed assets such as skill, labor, money, or property. Each of the partners sharing ownership will thus receive an appropriate share of the profits and losses incurred by the business.

Limited Liability Company

This is a kind of hybrid structure which includes some of the features of a corporation, as well as some of the operational flexibility which is normally associated with a partnership. LLC’s are not taxed as separate business entities, and instead losses and profits are passed right through the business onto all the members of the LLC. Each of these members would then report those figures on their own personal tax returns.

Corporation

An independent legal entity which is solely owned by shareholders is known as a corporation. Any legal responsibilities for debts or other actions thus fall to the corporation rather than the shareholders. This is one of the more complex business structures to establish, and is generally only recommended for larger companies which have a great many employees.

Cooperatives

These organizations are operated for the benefit of individuals deriving advantages from their services. It’s very common to form a cooperative in the agriculture, restaurant, and healthcare industries. You can become a member of such a cooperative by purchasing a share, and this will entitle you to voting rights and influence over the direction of the cooperative.

Is Your Small Business Ready for Startup? 

After you’ve chosen the right structure for your small business, you’ll need to be concerned with financing. Contact us at Third Bay Capital so we can discuss your financing needs at startup time.