| There are five distinct business structures available in | | | | something tragic should happen to you, or if you decide |
| the United States, including Sole Proprietorship, | | | | to retire or sell your business to a competitor. |
| Partnership, Limited Liability Company (LLC), S | | | | Ideally, you need to think about the structure before |
| Corporation and C Corporation. The three most | | | | you start a business. If you are already running a |
| popular structures are Sole Proprietorship, LLC, and C | | | | business, though (or if your hobby is turning into a |
| Corporation. | | | | business), then you need to decide on the business |
| Obviously, the simplest business structure is a Sole | | | | structure as soon as possible. If you decided that |
| Proprietorship. Most people who start their own | | | | today is the day you will pick a business structure, then |
| business without doing anything to form a separate | | | | make sure that today really is the day you do it. Do |
| entity are called sole proprietors. This is, by far, the | | | | not put this decision away until you get "big enough." |
| simplest business form. Basically, you and your | | | | Do not think that it will be easy for you to change your |
| business are one in the same. In some cases, a Sole | | | | business structure whenever you feel like it. Although |
| Proprietorship is the best option, but it is not always so. | | | | you can always register a new company and transfer |
| Operating as a sole proprietor is certainly the easiest | | | | assets to that new entity, you cannot erase the past; |
| and cheapest form of doing business. You basically | | | | sometimes the past comes back to haunt you. |
| open the doors and go. The temptation to operate this | | | | What if you start a business as a sole proprietor and |
| way is great and many succumb. The shortcomings of | | | | do something wrong without any immediate |
| this form of business are great also. There is | | | | consequences. Later on, you might finally get "big |
| absolutely no protection between you and your | | | | enough" and incorporate. All is well, until the day when |
| business and there are no tax benefits. There are no | | | | you get sued for something you did years ago. Now |
| particular record keeping requirements which is quite | | | | as a big company, you present a lucrative target for |
| easy but often leads to sloppy business practice. | | | | others to sue you. Because they might sue you for |
| Sloppy business creates poor decision making and | | | | something that occurred when you were operating as |
| sets up failure. At the very least you become a sitting | | | | a sole proprietor, your new business structure might |
| duck for IRS audit and lawsuits. Planning, at the | | | | not be able to shield you from the liability. |
| beginning, can save you money on an ongoing basis | | | | You might have an investor dispute that originates in |
| and protect the assets that you have worked so hard | | | | the days before you were incorporated, because |
| to accumulate. | | | | some decisions you made back then can influence the |
| The decision you make when choosing one business | | | | future of your venture. Your future partners or |
| structure instead of another will have an effect on the | | | | investors (that you never thought you would have |
| future of your business. The decision you make will | | | | back when you were small) might blame you |
| affect your ability to attract investors, transfer your | | | | personally for it. |
| business to someone else, sell it or bring new people | | | | A person you hired in the past to do a small job may |
| into the business (people of different qualities, such as | | | | have done something wrong, and now you are |
| managers vs. partners vs. angel investors vs. stock | | | | personally responsible for it, even many years later. |
| holders). | | | | That is why LegalCreation recommends forming and |
| The structure you choose also affects the exit | | | | LLC or Incorporation depending on your business and |
| strategy of your business. The structure you choose | | | | priorities. |
| today affects what will happen to your business if | | | | |