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Selecting a Business Structure

selecting the proper structure

Selecting the right structure for your new business
Generally, this type of business is operated by one person or husband/wife. Because of that, we will limit our discussion to the two most common business structures used in this industry.

No matter which structure you choose, you should always evaluate the structure as your business changes. Adding employees, partners, vehicles, and any other significant change could make another structure more logical.

Sole Proprietorship
This is the simplest form of business and most common among one person businesses. Anyone who conducts business in their own name is a sole proprietor by the very nature of doing business.

To use a business name in conjunction with a sole proprietorship usually just involves filing a "Doing Business As" (DBA) registration with your state. This document is usually enough to open a business bank account if you want one.

The benefits of the sole proprietorship include simplicity, no extra administrative work, and less expensive set up. For most one owner situations, the sole proprietorship is the preferred structure. To reduce liability risk, adequate insurance coverage should be carried.

The risks of a sole proprietorship are that the company and individual are one entity. All debts and other liabilities are dealt with as personal ones.

Limited Liability Company (LLC)
The LLC is a popular business structure for small businesses. It reduces your liability by maintaining a separation between you and the company. An LLC does not replace the need for insurance and cannot protect against personal liability from negligence.

Protections and costs vary from state to state. Setting up an LLC can sometimes be done directly with the state. There are also some "Do-It-Yourself" kits available on the web, as well as companies that will register your LLC for you.

The benefits of an LLC are some added liability protection, a more structured and long lasting business entity, the opportunity to build credit in the business name, and easier to raise capital if needed.

Some risks and common misconceptions about LLC's. LLC's do not eliminate all liability, especially for personal actions. Owners tend to underinsure under this structure, and failure to comply with all LLC filing requirements will render the structure no different than a sole proprietorship.

Summary
The decision on the best business structure is a very personal one and depends on a number of factors like: number of employees, number of partners, assets at risk, and business practices. As your business matures, you can always change the business structure.

Next: Creating a Business Plan
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Start-Up Guide

A good place to start is our Opportunity page.

If this sounds like a business that fits your experience and needs, then use the links below to obtain valuable information and resources for starting your new business.



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