GROWBIZ LLC
Sole Proprietor
The vast majority of small businesses start out as sole proprietorships. These businesses are owned by one person, usually, the individual who has day-to-day responsibility for running the business. Sole proprietors can be independent contractors, freelancers or home-based businesses.
SOLE PROPRIETORSHIP ADVANTAGES
Owner receives all the profits
Profits are taxed only once
Owner makes all decisions and is in complete control of the company (could also be a disadvantage)
Easiest and least expensive form of ownership to organize.
SOLE PROPRIETORSHIP DISADVANTAGES
Unlimited liability if anything happens in the business. Your personal assets are at risk (including your home in Missouri)
Limited in raising funds and may have to acquire consumer loans
No separate legal status
Tip: When looking at setting up a sole proprietorship, assess what type of liability you have. If you’re selling advice or services, you may need an errors and omissions insurance policy to cover yourself against claims for negligence. Determine what you have to lose. Do you own a home or savings account? Your personal assets could be at risk in the case of a lawsuit.
LLC
Did you know that LLCs are only recognized at the state level? In addition, it is actually a type of corporation!
A limited liability company or LLC is a hybrid business structure that provides the limited legal liability of a corporation and the operational flexibility of a partnership or sole proprietorship. However, the formation is more complex and formal than that of a general partnership.
LIMITED LIABILITY COMPANY ADVANTAGES
Most common business structure and specifically created for small businesses
Must have insurance in case of a suit
Separate legal entity
Usually taxed as a sole proprietorship
Unlimited number of owners
LIMITED LIABILITY COMPANY DISADVANTAGES
Can be costly to form
Yearly administrative costs
Personal tax liability
Legal and accounting assistance is recommended
Partnerships
n a Partnership, two or more people share ownership of a single business. Like proprietorships, the law does not distinguish between the business and its owners. The partners should have a legal agreement that sets forth how decisions will be made, profits will be shared, disputes will be resolved, how future partners will be admitted to the partnership, how partners can be bought out or what steps will be taken to dissolve the partnership when needed
Disclaimer: If you’re establishing a partnership, it is extremely important to make sure everything is outlined in case things go sour, especially in the case of starting a business with a loved one or friend. Seek legal advice to create a partnership operating agreement to hash out all business decision possibilities including succession or exit plans.
PARTNERSHIP ADVANTAGES
Easy to establish (with the exception of developing a partnership agreement)
Separate legal status to give liability protection
Profits taxed only once
Partners may have complementary skills
PARTNERSHIP DISADVANTAGES
Partners are jointly and individually liable for the actions of the other partners
Profits must be shared with the partners
Divided decision making
Business can suffer if the detailed partnership agreement is not in place.
A corporation is considered by law to be a unique entity, separate from those who own it. A corporation can be taxed, sued and enter into contractual agreements. The corporation has a life of its own and does not dissolve when ownership changes.
There are three types of corporations: C-corporation, S-corporation and Limited Liability Company.
C-corporation
A C-corporation is a corporation that is taxed separately from its owners. It gives the owners limited liability encouraging more risk-taking and potential investment.
C-CORPORATION ADVANTAGES
Limited liability
Transfer of ownership, shareholders can sell their shares
Capital is easier to raise through the sale of stock
Company paid fringe benefits
Tax benefits
C-CORPORATION DISADVANTAGES
Double taxation (corporation and shareholder earnings taxed)
Can be costly to form
More administrative duties - required by law to have annual meetings, notify stockholders of the meeting, must keep minutes of meetings and turn in
Pay corporate taxes at a different time than other forms of business
S-Corporation
An s corporation also known as subchapter S-corporation offers limited liability to the owners. S-corporations do not pay income taxes rather the earnings and profits are treated as distributions. The shareholders must report their income on their individual income tax returns.
S-CORPORATION ADVANTAGES
Limited liability
Avoids double taxation
Profits taxed only once
Capital is easier to raise through the sale of stock
Transfer of ownership
S-CORPORATION DISADVANTAGES
Can be costly to form
Stockholders limited to individuals, estates or trustees
Required administrative duties
Cannot provide company paid fringe benefits
Stockholders are limited to citizens or resident aliens of the United States
— Name, Title
— Name, Title