You may be considering starting your own business after being inspired by a spark of an idea. Owning your own business can be lucrative and rewarding, but it takes a lot of work to get it off the ground. One of the first decisions you will have to make as a new business owner is how to structure your business. Three common options are: a sole proprietorship, a partnership or a limited liability company (LLCs).
What is a sole proprietorship?
If you have no business partners and are still testing the waters of being a business owner, you may want to start off with a sole proprietorship. In fact, unless you explicitly choose another business structure, your business will be a sole proprietorship by default. A sole proprietorship is not a separate legal entity. This means you will be personally liable for the acts, debts and obligations of your business.
What is a partnership?
If you are going into business with one or more business owners, you may decide to form a partnership. As the name suggests, a partnership has two or more business owners. The partners will execute a partnership agreement that outlines their roles in the organization. Whether you are personally liable for the acts, debts and obligations of the partnership depends in part on whether your business is a limited partnership (LP) or a limited liability partnership (LLP).
What is an LLC?
An LLC has one or more members. An LLC is a separate legal entity from its members. This means the members of an LLC are not personally liable for the acts, debts and obligations of the LLC. The members of an LLC may have an agreement on the transfer of ownership should one of them leave. If not, when a member leaves or joins the LLC, the LLC needs to be dissolved and reformed.
Choose the best structure for you
You have many options for structuring your new business. You want to make an informed choice so that your new enterprise flourishes. Sole proprietorships, partnerships and LLCs are only three options that you may have. You can make the right choice by exploring all your options in the business formation process.
