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Local Business  » How To Choose The Proper Business Entity?

How To Choose The Proper Business Entity?

Choosing your business structure is just as important - if not

more important - than marketing. You should consult with your

accountant or your attorney in forming your business. The

process in setting up your company is as follows; these are just

the key points that need to be done, but not necessarily in the

exact order listed.

First, you need to come up with a company name and ascertain if

the URL is available for that website. If the URL is available

for that name, the next step is to register that name with the

Secretary of State in the state that you reside in. At this

point, there are two options: One is to consult with your

accountant or CPA to decide if you should be a sole proprietor,

partnership, limited liability corporation or a Corporation. At

the very least, reserve the name with your Secretary of State

for a minimal fee while you decide what business entity you

should be.

Here are the four types of business structures and a brief

explanation of each:

1. Sole Proprietor - A Sole Proprietorship is one individual or

married couple in business alone. Sole proprietorships are the

most common form of business structure. This type of business is

simple to form and operate, and may enjoy greater flexibility of

management, less legal regulation, and fewer taxes. However, the

business owner is personally liable for all debts incurred by

the business.

2. Partnership - A General Partnership is composed of two or

more persons (usually not a married couple) who agree to

contribute money, labor, and/or skills to a business. Each

partner shares the profits, losses and management of the

business, and each partner is personally and equally liable for

debts of the partnership. Formal terms of the partnership are

usually contained in a written partnership agreement.

3. Limited Liability Corporation - A Limited Liability Company

(LLC) is composed of one or more individuals or entities through

a special written agreement. The agreement includes: provisions

for management, ability to assign interests and distribution of

profits and losses. Limited liability companies are permitted to

engage in any lawful, for-profit business or activity other than

banking or insurance. LLC's cannot have more than 35

shareholders.

4. Corporation - A Corporation is a more complex business

structure. As a chartered legal entity, a corporation has

certain rights, privileges and liabilities beyond those of an

individual. Doing business as a corporation may yield tax or

financial benefits, but these can be offset by other

considerations, such as increased licensing fees or decreased

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personal control. Corporations may be formed for profit or

nonprofit purposes.

As you can see, each entity is somewhat different. In my

opinion, I would either be a limited liability corporation or

Corporation. There is a little bit more record keeping involved

for a corporation, but is by far, well worth the time and effort

that you expend. I attended to a financial seminar about 15

years ago and I learned that if I could take advantage of every

deduction there was as, just a regular working person, I might

only be eligible for 70 different deductions. If I owned a home

there were a little over a hundred deductions. If I was in

business for myself there were close to 200 available

deductions. Here is where things changed: if I were a

corporation, there were well over 300 deductions!

So, the moral of the story is this; if you can be a corporation,

be a corporation, BUT you absolutely must talk to your

accountant or attorney before you make a determination of which

business entity you should be.

About the author:

Tom Perkins is a business solutions coach and certified personal

trainer who leads fitness professionals to profitability.

Send an email to thecoach1-140208@autocontactor.com to receive

the Essential Business Success Checklist. Or visit his website

at http://www.fitnessindustrysolutions.com.