One of the numerous things that you need to decide during the planning stages of a business startup is what type of business you are going to run. This has nothing to do with the actual business niche or product itself, but rather the actual legal type of business that you are going to be involved in. When you decide to start your own business, there are a number of different business types in the legal sense to consider. These types vary from country to country, but there are numerous general consistencies along with a few major distinctions that are summarized below.
Sole Proprietorship
The first of these business types is the one known as a sole proprietorship. This is the most common business type simply because it is the easiest one to start with. The major distinction is that a sole proprietorship consists of the business being wholly owned by one person and therefore being associated with that one person. The business expenses and liabilities are assumed by that one person, but at the same time, that one person has total control over everything that the business does. Sole proprietorships are free to start in terms of legal registration and do not require a separate tax return or a separate tax number in most cases as the income from a sole proprietorship is usually just reported as self employment income on the individual tax return of the owner.
Partnership
The next step up from a sole proprietorship, is the concept of a partnership. There are a number of similarities between these first two business types. The most obvious one to point out is that partnerships are also inexpensive to start and easy to run in the legal sense because all of the partners can usually just report their share of income as self-employment income rather than requiring another tax return for the business. One distinction of a partnership is that the partners by default share responsibility for the business and its expenses and liabilities in a legal sense unless there is an agreement that specifically assigns responsibility to one partner.
Corporation
The next step up from a partnership is a private corporation. The major distinction here is that a corporation is a business that is a separate entity from the people that run it. This means all of the liabilities belong to the business, and for the most part the people running the business cannot be held responsible for those liabilities. This is what makes private corporations so popular. Anyone can start a corporation by choosing a name, filing it with the state or government agency and paying the start up fees. However, the maintenance of a corporation requires regular fees to be paid as well as the up-front registration fees, and regular records of the business affairs must be kept along with regular board meetings. These records must always be available for review. In addition, a separate tax return for the business is required because it is a separate entity. A good bookkeeper can help you set up and maintain the necessary paperwork to run a corporation and make sure all the necessary reports are filed on time. You can later do this yourself once you feel comfortable doing so, and use your bookkeeper for filing the yearly corporate reports. The key to having a corporation as your home business type is to keep good records and have a good filing system, but really it is just as easy to run your home business as a corporation as it is a sole proprietorship or partnership once you understand how.
About the Author:
Barbara J. Beddall is owner of SmarterWay2Work.com and writes on a variety of subjects. To learn more about this topic, Barbara recommends you visit: www.SmarterWay2Work.com.
Sun, 30 Mar 2008 13:26:38 - 100%
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