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The Must Knows Of Starting A Business
| We would all like to start our business at some point of our lives so that we have the freedom of doing things our way, not face an over-demanding boss or set our own schedule to work. The good news is that it is quite easy in the U.S. to start a business because of the laws. |
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Although it is easy to set up a business, there are certain must-knows of starting a business that you should be aware of. There are many different ways of starting a business and ultimately the method you choose to start one could make all the difference.
You can start a sole proprietorship, partnership, corporation or a limited liability company. Before you start dwelling on which one is suitable, you should first find out what each type of business is all about.
A sole proprietorship is when you run and manage the business yourself. This type of business is very easy to set up. Statistics show that 73 percent of all businesses in the United States are sole proprietorship. Although easy to set up, a sole proprietorship does not protect you from business liabilities. If a claim is made against the business and the assets are not enough to pay the claim, the claimant can collect the money through your personal asset. And a sole proprietor you have to pay self-employment taxes on your earnings at the rate of 15.3 percent.
You and another person can form a partnership if the two of you decide to start a business. A partnership is also relatively easy form but the profits are shared between the partners. That is why it is important to have an agreement in writing so that you and your partner know how to divide the cost of the business and revenue. The benefit of a partnership is the ability to delegate responsibilities between the partners. That is why it is common to see one partner contributing the capital for the business, while the other is working hard to establish it. You are also not taxed at entity level and the income belongs to the partners. However, a partnership does not protect you from liabilities and you may end up paying if your partner is at fault.
The other alternative of starting a business is to set up a corporation. A corporation is a legal entity and shareholders, directors and management are not part of a corporation. If you set up a corporation you get liability protection. This means a claim can be only made from the corporation’s assets and your personal assets will not be at risk. You can take risks in a corporation because of this. In order to set up a corporation, you have file paperwork the responsible state agency and you have file reports on a regular basis. A corporation has board of directors and management.
If you want the benefit of corporation with the flexibility of a partnership, then a limited liability company is for you. A limited liability company has to be registered with the Secretary of State and you are required to file annual reports. However, owners (or members as they called) can delegate the tasks among each other. You will also enjoy the same tax treatment as a partnership.
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