Choosing The Right Business Entity

Choosing The Right Business Entity

How to choose the right business structure for your startup https://onlinebeginnershub.com/choosing-right-business-entity/How to Choose The Right Business Entity and Structure For Your Startup

When you start up your business you’ll want to figure out your tax-related business identity. There are a few choices depending on where you live. In the USA you can choose to be a sole proprietor, partnership, a limited liability corporation (LLC) or a corporation. Each has different rules, regulations and tax consequences. It will depend on your individual business and what works best for you.

In Australia the principle choices are sole trader, partnership, trading trust or proprietory company. There are other structures for larger entities or joint ventures but they are the main ones. In this article you can assume that LLC is equivalent to Pty Ltd in Australia.

Some types of businesses are required to be in a certain category, but a large share of businesses can run as sole proprietors or LLCs easily.

 

Sole Proprietor

This type of business set-up means that there is just one owner who is totally responsible for everything. It’s the easiest way to start a business, and how most people get started as long as they’re not in a category that requires another entity.

One problem with this type of business is that if something goes wrong and a customer or other person is harmed in some way and brings a lawsuit, they can win your personal funds and even take your home. Taxes are easy in the USA with the schedule C on personal income taxes. Taxes in Australia just form part of your personal income tax return as forming business income though there are special rules applying to business losses. The same problems of creditors being able to access your personal assets apply in Australia and many other countries. A special legal entity known as a trust (discretionary trust, unit trust, trading trust) may solve some of these asset proection issues but you should seek professional legal advice.

 

Partnership

If you are running a business with another person, then you may want to form a partnership. You don’t have to in order to run a business with someone else, but it can offer another level of protection for both parties in the event of a disagreement or even a lawsuit. Income taxes are simple and somewhat like the schedule C reporting, with an additional information return filed. This type of business can be difficult at times, but it’s just as easy to set up as a sole proprietorship.

In Australia you need to file separate partnership tax returns and a partnership is treated as a separate tax entity but is not a separate legal entity. The same asset protection problems to partnerships just as with a sole trader. And partners are usually responsible for acts and debts of other partners so you need to trust the person / people you are going into business with.

 

Limited Liability Corporation or Pty Ltd Company

Many people like to form LLCs because they have the opportunity to file taxes as a partnership, corporation, or even as a sole proprietorship. The LLC is mostly just to protect individual business owners from personal liability if something goes wrong and a lawsuit happens, or if the business goes under.

Corporation

In the USA there are many types of corporations such as an S Corp and an INC. These are the most expensive types of entities to form, and have many requirements such as having a board, separate taxes for the business and owners, and other issues. You’ll definitely need to work with a CPA and perhaps a corporate lawyer to help you form a corporation and keep compliant with the laws.

 

Business Operations

The business entity that you choose will make a difference in how you file income taxes and run your business on a daily basis. You’ll need to speak to a financial expert such as a CPA to help you determine which entity is best for you.

 

GST / Sales Taxes

Once you are operating a business you may be required to register for and collect on behalf of the Government either sales taxes (USA) or GST (Australia) or VAT (Europe). These obligations apply equally to all legal structures discussed above. You should consult the tax authorities in your own country to ascertain your own responsibilities as they differ dramatically from country to country.

If you are in the USA then we recommend that you seek further advice from Corpnet who have some further free advice on their website.

For help designing the perfect business to achieve your desired lifestyle we highly recommend Build Your Online Business from the Suitcase Entrepreneur – we own and have used this resource ourselves.

 

Thanks for reading,

Dale.

 

By | 2017-01-13T22:22:44+00:00 January 13th, 2017|Business, The Basics|Comments Off on Choosing The Right Business Entity

About the Author:

Dale Reardon is blind and an experienced internet and online small business marketer living in Hobart Tasmania, Australia. Apart from marketing services Dale and his wife Jo help people relocating to Tasmania and share the great lifestyle of Tasmania. Please get in touch if you want to discuss how Dale or Jo can help you.
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