Owning a business is a large part of an entrepreneur’s life. To set yourself up for success, it is important you choose the right type of business to pursue. In making this decision, follow a few dos and don’ts to help you select the best business form for you.
The Types of Business
One of the first things you must do is to grasp an understanding of the different types of business possibilities. There are five main business types you can consider pursuing:
- Sole Proprietorship: This type of business is owned and ran by one individual and is commonly a business type individuals use to conduct business as themselves.
- Limited Liability Company: This is a type of company that can be owned by one or more individuals and protects the owners, or members, from personal liability. Members can run the business themselves or hire managers.
- Limited Partnership: A limited partnership has general and limited partners. The general partners manage the company with the approval of the limited partners.
- General Partnership: In a general partnership, all partners share equally in the management and operation of the business, unless otherwise noted in the partnership agreement.
- Corporation: This company is owned by shareholders. A board of directors is elected to management the business of the company, while officers run the business and see to its daily activities.
Researching the different business types and narrowing down your focus to one entity can make the application of the dos and don’ts much easier.
- Do plan ahead. Develop and write out a business plan. This can help you to pinpoint the entity that will work best for you.
- Do take time to study and understand all tax implications and personal liabilities of the business type you are considering. Make sure you are prepared to uphold such requirements.
- Do properly file your organization documents with the state in which you want to be incorporated, if the business entity you choose requires such documentation. It should be noted that a sole proprietorship does not require incorporation.
- Do seek guidance from an attorney concerning any part of the startup process you do not understand. If possible, it could be beneficial to retain a lawyer for your business.
- Don’t allow yourself to panic. Creating a business does take work, but it is possible to achieve. Seek assistance when necessary to get your business off to a good start.
- Don’t operate your company before you have fully determined the type of business form it should be. Though some individuals may begin operating as a sole proprietorship with intentions of forming a corporation or LLC in the future, they leave themselves vulnerable to personable liability, legal obligations and debt during the time it takes to set up the final entity.
- Don’t make assumptions. Check that the business form you choose is able to operate in all of the states you plan to conduct business. A sole proprietorship or general partnership may be able to do business in most states freely, there could be stipulations for the other types of entities. Know the laws, and make sure your business is in compliance in each state.
There are many aspects of setting up a business that you should consider. As you learn more about the different entities, their functions, components and requirements, you can begin to narrow your focus to the type of business you want. Once you have decided this, it is critical that you complete all necessary steps for incorporation and that you stay in line with set business requirements. Keeping the aforementioned dos and don’ts in mind can help you get on the right start in setting up your business.
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.