Start a company
Elon Musk, when asked, what is the simplest way to get rich, said: “Start a company.” He said further: “My motivation for all my companies has been to be involved in something that I thought would have a significant impact on the world.”
Choose a proper structure
Today, we will decide what business structure you should choose to operate smoothly. Establishing a business structure is not hard. There are only several structures you should consider.
We will focus only on three types of legal structures. We are not going to consider the so-called “C corporate” and “S Corporate.” At the beginning of your business journey, it is enough to focus only on Sole proprietorship, Partnership, and Limited Liability Company (also known as LLC).
So, let’s start.
Sole proprietorship
A sole proprietorship is the quickest, the cheapest and easiest way to begin your business. It requires minimum paperwork. However, in this form of business, you and your business are viewed as a single entity, which puts your assets (home, car, etc.) at risk if you go into debt. Many home business owners start with this structure but eventually move on to form an LLC or other business structure. Consider this option if you want to have full control over your business, or for example, you want to live only from royalties (you create music, blogs, books) that someone uses and pays you an agreed fee. A sole proprietorship includes both their business expenses and personal income on their individual tax return.
Partnerships
A partnership is a structure where two or more individuals own and operate together. Partnerships can be split into either general partnerships or limited partnerships.
General partnership
Two or more people own this type of structure. In “general partnerships,” the partners lead the business. It is their responsibility for the partnership’s debts. All profits and losses are shared equally by the partners.
To avoid issues at the later stage, create a partnership agreement to point out the specific shares for each partner.
Limited partnership
A minimum one general and one limited partner is needed when starting a limited partnership.
Limited partners only act as investors, and usually, they do not have the right to make business decisions.
General partners own and operate there business. They are having liabilities for the partnership. You have control and responsibility if you are a general partner. On the other hand, limited partners get ownership without taking responsibility and risks.
Limited Liability Company (LLC or LTD)
LLC is a safer business form than the sole proprietorship. Your LLC separates business and personal liabilities. All owners have shared tax responsibilities.
Do it yourself or hire a lawyer
To set up an LLC or LTD, you can do it yourself or hire a lawyer or use legal resources. It might cost you several hundred dollars, plus fees your state charges, but you need to do it right. So the initial costs are not so high compared to the potential costs of being not aligned with current regulations. Your state agency regulates corporations and will have all the necessary information. Probably you can even apply online.
Choose a marketplace
Where is the best place to set up your LLC or LTD company? Well, it all depends where you leave and which state you are a resident of. If you think about reaching the largest markets, the most considerable flexibility gives you LLC in the US or LTD in the European Union. It is enough to set up a company in Ireland and then have easy access both to all European Union countries and the United States market. However, if you are not Ireland or even European Union resident, then consider hiring a specialized legal agency that will help you to arrange all the papers.
Consider tax liabilities
Coming back to the US, each state treats Limited Liability Company differently, so tax liabilities vary depending on location. Check with your state for specific LLC regulations. What is more, hire an accountant to be inline with all the state tax regulations. We assume you are going to expand your business far beyond your state and country. Hence, keep the excellent book records. Having a mess will complicate the process.
P.S. If you skipped the article, please find a short wrap-up of what this is about.
- In this article, you have learned about three business structures: sole proprietorship, partnership, and limited liability company.
- You can point out the main differences between the particular business structures
- Finally, you decided what business structure you choose for your company