Jean L. Serio

Thinking about starting a business? Aside from determining your market and product, two of the most important onsiderations you must make are - liability and taxation. While there are several types of business structures to consider, it's important to decide which one provides you with the level of personal liability and taxation you're comfortable with. Here's a general guide of 7 ways structure your business:

1. Sole Proprietorship:

A sole proprietorship is a business owned and run by one person. And in the U.S. most small and home businesses qualify as sole proprietorships. You may be required to apply for general licensing and permits, wheen you have one. Or file special forms to create one. In the U.S., you are "Mary Jones, DBA (Doing Business As) Widgets Plus". Should you decide to be known only as Widgets Plus, you would then apply to the office of the Secretary of State in your state, or your local government, for a "fictitious or assumed name" for your business.

Sole Proprietors take full responsibility for their business, including liability and taxation. Depending upon the type of insurance you have - property loss, product liability, personal injury - people can sue you. In the U.S., the Internal Revenue Service (IRS) does not treat you as an employee of your business, so money received from sales or services, or any other method, including such things as assets sold, is taxed. You can deduct business expenses and costs of doing business from your gross sales, when you file your annual personal tax return.

2/3. Limited Liability Company (LLC) or Limited Liability Partnership (LLP):

As a Limited Liability company (LLC) you can run your business alone, as a sole proprietor does. Yet still have some liability protection a corporation does. An LLC structure helps protect personal assets, such as your home, against business losses. It's simple to set up and maintain.

With an LLC, you'll also get the tax flexibility of a sole proprietorship, with business income passing through to you as personal income. Any business expenses can be deducted from your annual personal tax return.

In a Limited Liability Partnership partners are limited to the legal liabilities for debt to which the partnership owners are exposed. They do not protect professionals, such as lawyers or doctors, from malpractice claims. Ownership depends upon decisions made when the partnership is set up. (The developer of the business may own seventy-five percent, a partner twenty-five; each taxed on the percentage owned.) Laws vary from state to state, closely following rules for General Partnerships. Hire an attorney experienced with incorporation rules and setup.

4. "S" Corporation:

An "S" Corporation is similar in structure to an LLC. It was developed for small and home based businesses. It gives them some of the same personal liability protection as a corporation, without requiring them to incorporate. However, in some states, home based businesses get fewer benefits than those with an LLC. Check with your state and/or an experienced lawyer.

5. "C" Corporation:

A corporation is a separate and distinct structure from it's owners. It: owns all income from sales or investments, all assets and property; is responsible for all debts and obligations incurred; can sue and be sued; has tax reporting requirements and may be required to pay taxes; must have a record keeping system; must have it's own bank accounts.

A small, or home based business can also incorporate. If there's only one owner, this individual would hold two corporate positions, (say - president and secretary), although all other rules of incorporation apply. Family members, who've organized a business, may opt to incorporate, shileding them from personal liability. While corporations protect owners from most liabilities, owners are personally liable for such things as fraud.

In a "C" Corporation, usual decision-making requirements generally rest with the board of directors, which manage it's affairs. Shareholders elect the board of directors. A corporation can issue stock and there is no limit to the number of people who can own stock. Plus, corporations can be publically traded. The rules set by the U.S. Securities and Exchange Commission determine how that corporation can sell stock, and to whom.

Corporations have tax reporting requirements and may be required to pay taxes on corporate profits. There are specific forms to be filed, apart from any personal tax filings individual owners make.

The Internal Revenue Service (IRS) assigns "Employer Identification Numbers ("EIN") to identify the tax accounts of most corporations, partnerships and employers. On the other hand, Sole Proprietors are identified in the U.S. by their Social Security number.

A corporation must have Articles of Incorporation and By-Laws, to file reports and documents required by the state in which it resides. It's a complex situation best left to an experienced attorney.

6. Professional Corporation

Most states limit the structure of Professional Corporations to licensed individuals of the same profession. For instance, doctors and lawyers. While this structure allows these individuals to practice in a group, it also gives them the same liability protection as other corporations have, with the following two exceptions: (1) It must be organized for the sole purpose of rendering professional services; (2) Each individual member is personally responsible for their own acts of negligence.

7. General Partnership

In a General Partnership each partner owns a percentage of the business, making them each an owner. As with LLP's, the percentage each owns is designated in the original partnership agreement. Each partner works and shares equally in any decision making, and the running of the business. With income and lossess passing down to the partners as it does in an LLP. (The business - itself - is not taxed.) However, Form #1065 (U.S. Partnership Return of Income) must be filed.

Regarding liability: insurance, and a well written partnership agreement, help shield the partners. Bottom line - each partner is equally responsible for the full amount of business debt, whether consenting to it or not. Since organizing a General Partnership is somewhat complex, and includes the filing of forms similar to those when incorporating, it's wise to have an accountant and a attorney help set one up.

Word of caution:

These are guides and general descriptions of each business structure. And each may also have other specific regulations and requirements, determined by the state or country your business will reside in. With the exception of a sole proprietorship, all others need the expertise of an attorney and an accountant.

Jean L. Serio, Corpyright 2006. Are you are one of the 1.2 million women tired of working the 9-5 grind, sick of worrying about making ends meet? As you know, starting your own business still remains one of the best strategies for providing you financial freedom. Discover how to start a business, today, with your step-by-step Action Plan. Plus to ensure you receive all the details FREE, and learn how you can harness the power and resources you need to start, first sign up for your Free Newsletter "Start Up a Business Today" and receive your Bonus Report "5 Mistakes Women Make Starting Up a Biz". Go to: www.womensmarketingandbusinessnetwork.com "We help you make it happen!"