Startup Businesses - Overview Of Business Structures

A sole proprietorship is the most basic organizational structure, and a particularly common one among start-up businesses to boot. In the sole proprietorship structure, the founder of the company takes in all the profits and has all the decision-making power. Needless to say, organizing such a company is also an easy task. Unfortunately, this is where the benefits end. Any profits you make are taxed as personal income, your company will pay higher taxes, and you take on all legal responsibilities for your businesses' actions, meaning that personal assets are vulnerable to fines and taxes. Still, going it alone can be a good plan for some start-ups.

The partnership is more complex and consists of two or more people pooling skills and assets, sharing responsibilities in running the business. Each partner, however, takes on the same level of legal liability as a sole proprietorship. Furthermore, each partner your start-up brings into the fold will require a written and legal partnership agreement, complete with legal recourse for the partner to leave the business, assigning ownership of a company's assets to that partner, and assigning individual responsibilities to that partner. These agreements should always be fleshed out beforehand, and control of the company should never be divided in a way that allows for important decisions to become ties when brought before the partners in charge.

A limited partnership works much as a partnership, though there are a few key differences. The first is that partners, as either investors or advisors, serve under the same rules as a partnership, but not all partners are equally liable in a legal sense, though at least one partner must agree to take the unlimited legal liability attached to a sole proprietorship. The second is that partnership agreements include clauses that provide for a return on any investments made into the start-up, which can be a good way for start-up businesses to get the beginning funds they need. This rate of return is chosen at the time the agreement is made.

Finally, there's the option of incorporating your start up, effectively turning your company into a legal entity separate from owners and employees, at least in terms of legal liabilities. This protects your assets and, even better, can be done on your own. However, there are multiple kinds of incorporation that a company can become, and each one is held to different rules and standards by the government. Some possible drawbacks include increased cost, tighter regulations, company size requirements, and limited financing options in the future, depending on what type of incorporation you choose.

Even though it's not the fun part of starting your own business, it is important that you get these steps completed as soon as possible. When developing legal documents, you will want to remember to be as detailed as possible in order to protect your own interests if there should ever be a conflict between yourself and other involved parties. Staying grounded and making wise decisions will allow you to focus more on the business once things really get going.

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