From Small Business Trends, by Nellie Akalp Comment: Good, concise article for start-ups! Suzy When you’re starting or running a small business, countless questions arise, particularly surrounding your business’ legal structure: Is my business legal? What kind of business structure means I’ll pay the least in taxes? What happens if my business gets sued? What business structure is best for me? Below is an introduction to some of the most common business structures to help you navigate this important decision. Common Business Structures The Sole Proprietorship The sole proprietorship is the simplest way to operate a business. If you’re self-employed or conducting any kind of business and haven’t picked a formal business structure, then by default, you’re operating as a sole proprietor. The biggest advantage of the sole proprietorship is that it’s simple to form and maintain. Since there’s no separation between the sole proprietorship and the owner, any income earned by the business is considered income earned by the owner. A sole proprietor owner just needs to keep track of all the business’ income and expenses and report it on a Schedule C with their personal tax return. However, the biggest drawback of the sole proprietorship is that the owner is personally liable for any debts of the business. So if your sole proprietorship business runs into financial trouble, creditors can come after your personal property and savings. Likewise, you’ll be personally liable for any lawsuits brought against the business. The DBA (Doing Business As) A DBA (also called a fictitious business name, assumed business name, or trade name) isn’t actually a legal structure. Rather it’s a way for sole proprietors to use a business name without having to create a formal legal entity (i.e. corporation or LLC). This is typically the simplest and least expensive way for a small business to legally conduct business under a different name. For example, if Jane Doe wants to open a sole proprietor floral business called “Petals by Jane,” she needs to file a DBA for “Petals by Jane.” This is basically so there’s a public record to let everyone know what individual(s) are behind a business. The Corporation (C Corp) A corporation is considered a separate entity from its owners. This means that the corporation (and not the owners) is responsible for any of its debts and liabilities. This is often called the “corporate shield” as it protects the owner’s personal assets from the business. A corporation has a formal structure consisting of shareholders, directors, officers and employees. Every corporation must select at least one person to serve on its board of directors and officers are required to manage the day-to-day activities of the company. Corporations need to vote on...
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