If there is one thing we’ve learned from over a decade and a half of helping small business owners, it’s that every business is different. For new small business owners, it’s important that you choose the business entity that will suit your unique needs. There are four basic entities that you can choose from, each with its own advantages and disadvantages. While there is no “right” choice, depending on what you sell, where you plan to take your company, and how ownership of the company is divided, there will be certain entities that will fit your business model better than others.
Sole Proprietorships and Partnerships
Sole proprietorships and partnerships are the simplest type of business entity. They are also the default option. It doesn’t take much to start a sole proprietorship or a partnership either. Just file for a ‘Doing Business As’ name, apply for the right licenses and permits, and open your doors. If the business is run by two or more people, you will also need an Employer Identification Number (EIN) and you’ll have to file another form come tax time. But this simplicity comes at a price. Everything the business owes and owns is tied to your personal assets. In other words, you, and your partner if you have one, will be held liable for the business’s debts if it fails. Also, if you do have a partner, you may not be protected if they decide to walk away from the business. So, while running a sole proprietorship or partnership is a lot simpler, it does put an undue amount of risk on the owner(s). To limit your liability, consider forming a corporation or limited liability company.