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Choosing
The
Right
Business
Structure
As
a
new
business
owner,
deciding
on
the
business
entity
or
ownership
structure
of
your
business
is
one
of
the
first
major
decisions
you
will
need
to
make.
Some
of
the
factors
you
need
to
consider
when
making
this
decision
are:
- The
potential
risks
and
liabilities
of
your
business.
- Tax
Issues.
- Cost
of
establishing
and
maintaining
your
business
entity.
- Complexity
of
the
business
structure.
As
with
any
major
decision
you
will
make
as
a
business
owner,
it
is
important
to
investigate
the
various
options,
consider
the
advantages
and
disadvantages
of
each
option,
then
make
the
decision
that
is
right
for
your
business.
Your
tax
advisor
and
lawyer
can
assist
you
with
making
the
right
decision.
The
main
business
entities
are
sole
proprietorships,
partnerships,
corporations,
and
limited
liability
companies.
Sole
Proprietorships
This
business
entity
is
simple
and
inexpensive
to
adopt.
In
a
legal
sense,
the
owner
and
the
business
are
one
and
the
same.
A
sole
proprietor
maintains
complete
control
of
the
business,
owning
all
the
business
assets
as
well
as
all
profits.
A
sole
proprietorship
and
its
owner
are
considered
to
be
a
single
entity
for
tax
purposes,
and
the
business
proprietor
reports
profit
or
loss
on
his/her
personal
tax
return
(Form
1040:
Individual
Tax
Return,
Schedule
C:
Profit
or
Loss
from
Business).
This
business
structure
has
its
disadvantages
-
Sole
proprietors
have
unlimited
personal
liability
on
all
debts
and
judgements
relating
to
the
business.
Also,
many
sole
proprietors
find
it
more
difficult
to
raise
capital
for
their
ventures.
Partnerships
This
structure
is
also
relatively
easy
to
organize,
and
involves
an
agreement
between
two
or
more
people
who
share
the
business.
There
should
be
a
formal,
legal
agreement
between
the
partners
detailing
the
terms
of
the
partnership,
such
as
profit
distribution,
partner
contributions,
dispute
resolution,
changes
to,
or
dissolution
of
the
partnership.
Like
a
proprietorship,
the
business
and
its
partners
are
a
single
entity.
Partners
report
their
share
of
profit
or
loss
on
their
individual
tax
returns.
Each
partner
is
also
jointly
and
personally
liable
for
business
debts,
as
well
as
the
actions
of
the
other
partners.
There
are
two
main
types
of
partnerships:
General
Partnership,
where,
unless
stated
otherwise
in
the
partnership
agreement,
each
general
partner
participates
equally
in
the
management
and
control
of
the
business.
Limited
Partnership
-
This
business
structure
is
usually
used
to
attract
investors
as
limited
partners.
Limited
partners
contribute
capital,
and
share
in
the
profits,
but
are
not
usually
involved
in
the
management
of
the
business.
The
general
partners
manage
the
business
and
remain
personally
liable
for
business
debts;
limited
partners
incur
no
liability
with
respect
to
partnership
obligations.
Corporations
Forming
a
corporation
is
more
complex
and
expensive
than
the
other
business
entities.
A
corporation
is
a
separate
legal
and
taxable
entity,
closely
monitored
by
federal
and
state
agencies.
The
main
advantage
of
forming
a
corporation
is
that
the
owners
(shareholders)
have
limited
personal
liability
for
business
debts
or
judgements
against
the
corporation.
In
addition,
corporations
can
sell
stock
to
raise
additional
funds
for
the
business.
Limited
Liability
Companies
This
business
structure
is
a
fairly
new
business
structure,
and
is
also
more
complex
and
expensive
to
create
than
a
partnership
or
sole
proprietorship.
As
the
name
suggests,
owners
have
limited
personal
liability
for
business
debts
and
court
judgements
against
he
business.
LLC's
may
be
formed
with
only
one
member,
who
may
report
business
profits/losses
on
his/her
personal
tax
return.
An
LLC
with
two
or
more
members
may
be
treated
as
a
partnership
for
tax
purposes,
with
each
member
reporting
his/her
share
of
the
profits
(or
loss)
on
Form
1040.
The
LLC
reports
its
profit
or
loss
on
Form
1064,
confirming
each
member's
profit
or
loss
to
the
IRS.
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