Types Of Ownerships In Business

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Now comes, the next crucial question. Do you know what kind of business you want to opt for? The type of ownership and business structure you adopt will be based on:

  • Nature of business
  • Tax
  • Legal liability
  • Kind of shareholders.

There is no size that fits all; you must sit with a legal counsel and discuss the various objectives of your venture and reach a suitable decision.

 

Usually, there are three common types of proprietors.

  1. Sole Proprietor: For small firms usually, sole proprietorship works where the structure is simple and the related taxation requires a submission of a simple 1040 tax form. Here you are responsible for everything. The only disadvantages are the self-employment tax of 15.3 percent and complete legal liability.
  2. Limited Liability Company: In this structure, while you do pay your own income tax the shareholders have to pay tax on their dividend. You can also work it in such a way that all members of the company pay self-income tax and the company pays no income tax. These companies have a lot of flexibility in payment structure, legal liability, and even the tax structure. It is suited for all businesses especially those that do not want to go public.
  3. S Corporation: In this case, there is no double taxation and the employees do not have to pay self-employment taxes. They are in a sense corporate business with LLC tax structure. It has the advantages of the LLC but profits and losses must be equally borne by all the owners. This corporation can have only 100 shareholders and can deal with only one type of stock.
  4. C Corporation: If you want to go big and eventually public the C corporation structure is ideal. You have limited liability and tax deductions but very expensive to set up and keep pace with the double taxation.

 

So, when you consider what type of business you want to start, you must necessarily keep your costs in the accounting and legal department minimal.