Trying to figure out what kind of business structure to form? Before you can plan for success, you need to select the business structure that gives you the right balance of legal protections and benefits.
There are several ways to establish a business, but some structures limit your liability or protect you from creditors and lawsuits.
Choosing your business structure can be confusing. There are many to choose from, including sole proprietorship, partnership, corporation, and LLC.
If you choose wrong the business structure it can be detrimental to your business operations and you might find yourself looking for things like GST late fees calculator.
This page has more information on different calculators you can use for efficiency in day to day operations of your business. Let’s look at the basics of some of the most common business structures and consider which one is right for you.
1. Sole Proprietorship
If you don’t want to register a business, but you sell goods or provide services under your name, you’re considered to be a sole proprietorship by default. Sole proprietorships are easy to form and require little paperwork. Sole proprietorships do not lead to the creation of a separate business entity.
Sometimes referred to as a one-person business, a sole proprietorship is a business in which the owner and operator may be held personally liable for any damages sustained by the business. In simpler terms, they are businesses that are owned and run by just one person.
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An LLC, or limited liability company, follows a hybrid business structure and combines some of the benefits of a corporation with some of the benefits of a partnership while limiting your liability.
Limited liability companies (LLCs) offer members protection from personal liability and tax benefits, while also having a structure that receives less government scrutiny than corporations. However, they can be expensive to set up, must file an annual return, and are subject to a range of laws.
You’ll need an operating agreement that you can create for your LLC using a template form builder which will be considered the binding legal document.
A corporation is treated as a separate legal entity from its owners and the two most important features of corporations are limited liability and perpetual life.
Corporations are legal entities that function much like individuals. As individuals, corporations can enter into contracts and be held legally accountable for their actions. Additionally, they hire employees and own assets. Corporations require a more complex administrative structure.
In addition to more extensive record-keeping, operational processes, and reporting, corporations also have several requirements that don’t apply to sole proprietorships.
A cooperative, or a co-operative, is an enterprise that is owned and self-managed by its members who are also the end-users of its benefits. Members of a cooperative receive dividend based on their contributions.
Most members at a cooperative share in the management, although a board of directors and officers may be elected to oversee day-to-day operations. There are many types of companies and organizations that can be considered “cooperatives”.
Farmer’s cooperatives and credit unions are just two examples. In India, Cooperatives work following Part9 of the Indian constitution and it even finds a mention in the directive principles of state policy.
While selecting the proper business structure is often left for the end by novices, it is almost as crucial as knowing about GST no digits or the process to get a loan for a business. Hence you must not overlook it.