Once you're ready to legally establish your business and have it registered, it's important to decide on what type of business ownership works for you.
Below are the most common legal forms that businesses take:
1. Sole Proprietorship- This type of business is typically referred to as "a one man business". The advantages are that you have full control over all decisions with the business, you can choose to continue and discontinue operations as you please. In the same respect however, you are fully responsible for the business. You provide the financing, you can be sued on behalf of your business and in the case of bankruptcy you (and your personal belongings) can be used to settle outstanding debts.
2. Partnership- Creating a partnership involves conceding some control to those whom you have chosen to form the business. However you benefit from sharing the burden of raising capital and shouldering any liabilities (ie, the ability to be sued) which may arise.
If you're not worried about liability, than the options above may be the best for you
3. Limited Liability Partnership- This builds upon the basic partnership in a more legally complex way. It usually involves one individual leading the team (general partner) to raise funds from partners who play a lesser role (limited partners). By accepting general partnership, unlike limited partners, you accept control for daily operations as well as liability.
4. Corporations- These represent the ultimate separation of businesses from their owners. The business becomes a separate legal and tax entity and thus it can sue and be sued separately from its owners. In the case of settling debts, company and not owner resources are used to cover debts. Establishing this type of business therefore makes sense if you forsee a strong possibility of being sued or you feel the need to protect personal assets.
To learn more about other types of businesses such as non-profits or cooperatives, please use the embedded links.
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