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Starting a New Business

If you have decided to start up your own business, it is worth investigating the kind of business entity that is best suited to your specific operations. The answer to this will be based upon 2 important factors, tax considerations and legal liability. This article will review the legal liability and tax considerations of the most common business structures.

Sole Proprietorship
A sole proprietorship is the kind of business in which it has no separate existence without its owner. Many new business owners opt for this kind of business structure, as it has no blanket prerequisites, does not pay corporate taxes, and files simpler tax returns. Additionally, all business decisions can be made by the owner without consulting a professional, partner, or lawyer. In a sloe proprietorship, the owner is taxed only according to his/her personal income.

General Partnership
A general partnership is a business in which all those who have invested in it must share in the profits and losses resulting from that business` operations. General partnerships receive better taxation conditions than corporations, as it eliminates the dividend tax levied upon profits by the owners of corporations. However, all business decisions must be agreed upon by all partners, and all partners must also share all rights, duties, profits, and losses equally unless otherwise specified.

Limited Partnership
A business partnership in which there are general partners and limited partners, and limited partners are active in the running of the business to the degree that they are liable on debts incurred by the firm and have no authority in running the business (similar to shareholders). Limited partners are protected by law in that their legal liability is limited to the amount they have invested in the business. This enables investors to share in profits without being exposed to debts if the company goes out of business.