Utah is booming right now. It’s become a preferred location for young people who have an education, a skill and a vision for the future. All of these entrepreneurs have a great idea. But sometimes, it’s not only the product or service a business offers that accounts for its success. The way a company is structured matters, too.
Types of business structure
Business formation is an important consideration for any entrepreneur. It’s possible to structure a business as a sole proprietorship, partnership, LLC or corporation. There are pros and cons to each of these set-ups.
Sole proprietorships are the most common type of small business. Only one person can be the owner of a sole proprietorship. That person can be held personally liable for business debts. This form of business requires the least amount of paperwork but carries substantial risk.
Partnerships are next in terms of complexity. There’s no paperwork to file with the state when forming a partnership, but it is wise to draw up a partnership agreement. This outlines the rights and responsibilities of each partner in the business. Partners share the business’s debts and other liabilities. The exception to this is a limited partnership. Limited partners can only be held liable for the amount they’ve contributed to the business.
LLCs, or limited liability companies, are the next level of complexity in business organizations. These separate the business from the individuals behind it. That means the business is held liable for debts, not the people who run it. LLCs are regulated at the state level. The IRS may treat LLCs as either corporations or partnerships.
Corporations can take different forms. They must be registered at the state level. Most start-ups do not take the form of a corporation, at least not initially. That’s because it is expensive to set one up.
The way you set up your company will determine how you relate to creditors and other businesses. Finding the right business structure may help you maximize efficiencies and weather the marketplace more effectively. When in doubt, a sole proprietorship is a good place to start.