Question and Answer Guide for Starting and Growing Your Small Business
Legal Structure and Regulations
What are the options for my
business’ legal structure?
As a small business owner, one of the first major decisions
you will make is to choose a legal form under which to
operate your business . It is important to understand the
four basic legal forms: sole proprietorship, partnership,
corporation, and limited liability company, and determine
the advantages and disadvantages of each . There are
variations to each type, and it is wise to remember that
the best sources of advice for making this decision will be
from your accountant and attorney .
Most businesses begin as sole proprietorships, the
simplest form of business . No special legal steps are
required to get started and it is the easiest one to end .
Bookkeeping and tax operation are also the simplest . For
income tax reporting purposes, you and your business are
considered to be the same . You do not pay yourself a salary
as such, because your profits, if any, are your “salary .” You
may or may not have a name, as you choose .
There may be good reasons why you need to consider
incorporating or forming a partnership . Partnerships are
necessary when two individuals want to do business
together . Partnerships have the advantage of combining
the resources or skills of two or more people into the
enterprise . A partner, for example, provides a source of
needed start-up capital for a business .
A written partnership agreement, although not mandatory,
is almost always a practical necessity . It describes each
person’s responsibility, how profits and losses will be
divided, how a partner can leave the business, and what
happens in case of serious discord or a partner’s death
or disability . You may wish to use an attorney for this
Partnerships do not have permanence; if one partner
leaves, the partnership is dissolved . Partners are
personally liable for all liabilities of the partnership