Where to start when thinking about Corporate Structures

You don't know what corporate structure is? It’s an imaginary box where you keep your business. What does that mean?  How do I choose? 

Do I really need to have a corporate structure for my business? What will happen if I don’t keep my business in this box? What are the pros and cons of Corporate Structures? Of course, these questions are ringing in your head right now.

Let me tell you what will happen if you don't choose a corporate structure for your business. (1) you may be personally liable for business debts ; (2) you may also be personally liable for injuries caused by the business; and (3) you may not get favorable tax treatment.

If you don't care about any of these factors then you might want to run your business as an individual. In business terms, this “box” is called a sole proprietorship. But that’s not the case for everyone. If you are bothered by these factors then, I’m here to break down some choices.

There are three most common boxes for running a business. Partnerships (Limited and General), LLCs (Limited Liability Companies), and Corporations. What are these boxes and which kind of box would be best for your business?

Let's not get this complicated and start!

Let me clear general partnerships for you

You need to have more than 1 person for general partnerships. But remember all the owners have the authority to manage the business.

They are easier to form. Need less paperwork than LLCs and Corporations. Every partner has the right to share decisions in management and business. One great benefit of this. Every partner will pay individual tax. Means you are out of double taxation. (I am not giving you advice about taxes.)

You know benefits of it. Let's see what the cons are. Every partner is personally liable for all business debts and obligations. Sometimes partners have conflicts in business. To avoid this, have legal templates for your business. There is no shareholder. That is why funding options are limited. 

Clear your limited partnerships doubts

Like previous one, you need more than 1 person who owns the business. Difference here is that at least 1 person is a “General Partner.” And at least 1 person is a “Limited Partner.”

All general partners will take part in management and business decisions. On the other hand limited partners are like silent partners. They contribute funds to have more share of profits and losses.

Like before, in a limited partnership, every partner will pay individual taxes. Means no double taxation. Again this is my general writing. I am not giving you advice about taxes.

Let's get into the cons. General partners are liable for all business debts and obligations. Limited partners are not personally liable. In the last one, you don't have a shareholder to raise funds. But here you can raise funds by adding more limited partners.

Must have heard of LLCs. Let me clear it for you

For LLCs (Limited Liability Corporations) either 1 or more than 1 person owns the business.

So what are the benefits? Owners' personal liabilities are secured from business debts and obligations. This is why many people want to have an LLC. Their personal belongings are safe. So why not start a business?

With LLC tax is simplified. You are also saved with double taxation. Reminder I am not giving tax advice. It can be managed by selected members and managers. But you need to have this in writing at the start of business.

Now we are here to discuss the cons. You need to protect limited liability for the protection of the place. LLC has more funding options. But some investors cause trouble. They do not fund due to the informality of LLC ownership.

Corporations are a bit different, let me clear it

For corporations, you need either 1 or more than 1 person to own the business.

Let's get into benefits. The personal liability of shareholders is protected from business debts and obligations. But only who owns the business.

This isn't like a partnership. This one lies out of the box. Business can run even with the founder’s involvement. Funding is easier. Corporations can raise funds by selling shares.

There is a con that we have been avoiding in past structures. Less paperwork! We have it now. Corporations are more complex. It needs more paperwork and legal formalities. You can resolve this with legal template packages.

You will need to follow more state laws. We also have to pay double tax. One for corporate and other for individual shareholder (owner) levels. Corporation businesses are strict. They hold regular meetings and maintain records. Have strict requirements to report income.

It's time to decide which one to choose for your business.

I wrapped corporate structures. Now it's up to you to decide. Which one to select for your business. But I guess you are confused. Trust me everyone goes through this line. The fact that now you know more than normal people is advantage. Think about your business requirements and choose the right one. Then all you need is to structure your business into that box.

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