Want to start a business? First figure out what it should be

So you want to start a company? That is great! But what kind of company you would like to form? Don’t be clueless and for God’s sake do not take any decision in haste because your future financial condition will be dependent on this decision in myriads of ways. Now I am not asking here what kind of service you are supposed to offer (because you know that better than anybody else) but what legal form your company is supposed to take. This is the single most important decision that will who are eligible to invest in your company, how you are supposed to pay the taxes or how your financial condition is going to get affected by it.

business incorporation

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Below are the three important things that you need to take care of before zero in on a decision:

Ownership: Depending on the business types, there are certain limitations on the number of people who can invest in a company. So, if you have a large plan and want to rope in foreign investment in the form of shareholders, corporate structure is the way to go. Therefore, my humble suggestion is please take this seriously and sit down with an accountant and an attorney to figure out which legal business form best suits your purpose.

Tax: The infamous three letter words that everyone hates. Honestly speaking, no one likes paying taxes and I hope you share the same feeling. So that means, you should abhor the idea of paying taxes twice. But it can happen to you if you do not take it seriously. May sound insane, but you may find yourself paying taxes once on income for business and then again for the profit distributed to you. So, figure out a solution before it is too late.

Liability: Corporation has an individual identity and that being that if the company is sued, individual shareholders will be not hold responsible. The assets of the company can be seized or freezed but the personal assets of the shareholders will not be seized. However, there are certain exceptions but rest assured, liability of personal share holder is largely limited.

So, now you are fully aware of the legal intricacies of forming a company. Let’s move on to the next big chapter that is selecting a legal business framework:

Sole Proprietorship: This is the best business model for individual who does not like the idea of being tied to a legal framework. It is super easy to form. No additional paper work needed and the best part, there is no such need to file corporate income taxes. However, on the flipside, you will not have any liability protection. This is something that you need to be careful about. If your business is sued, your personal assets can be seized and in some worse cases assets of your spouse can also be seized.

Partnership: In this business model, ownership of the company is shared with two or more people. There is no such legal intricacy involved in the process but it is advisable to draw up a partnership agreement. And to your relief, there is no such thing as double taxation. On the downside, each partner will have unlimited personal liability.

LLC (Limited Liability Company): This is the most popular legal business framework which is increasingly being adopted by business owners because of its unique flexibilities and other benefits. This business model provides personal liability of the business owners. Another unique feature of LLC is that it lets you share profits unequally and thereby rewarding those owners who are working hard to make the business a hit. However, it has its share of disadvantages too. Laws of LLC vary wide depending on the state and countries you are living. And there are certain restrictions on the number of investors one can have in a business and sometimes, foreign investment is allowed.

“S” Corporation: This is a kind of business model that provides personal liability but at the same time, it also provides pass through taxation. Since the laws of S Corporations are less complicated, it is a popular choice among lawyers and accountants. As far as its disadvantages are concerned, it does not let you distribute profit unevenly and you need to pay for the state corporate fees.

“C” Corporation: This business model proves the highest level of personal liability protection to investors and there is no such restrictions on the number of people who can invest in it. But double taxation is here and there is no way you can avoid this.

Author Bio: Michael Evans is a passionate blogger and he has written different articles on Cyprus Taxation.

Choosing a Business Structure for Your New Startup

You’ve just started your small business and are a bit confused as to which structure you should choose. It can be very confusing for a small business owner to know which business structure will be best for them, especially for those that never took business courses. However, it’s important to know that the structure you choose can greatly affect your taxes. That’s why it’s important to make the best choice. Here is a bit of advice for choosing a business structure for your new startup.

Types of Business Structures

The first type of business structure also happens to be the most popular. The sole proprietorship is a business structure ran by one person, the owner. Many small business owners prefer this method because it is easy to setup and doesn’t require any special licenses, other than the license to run your business if your jurisdiction requires it. The second business structure is the partnership. There are two forms of partnership and the most popular is the general partnership in which the partners share the liability and profits of the business. A limited partnership requires one partner to take responsibility of the debt. The last structure is the corporation, which can be one of three types (C, S or LLC). This business structure is for major corporations and the exact requirements and definitions will vary from state to state.

Advantages and Disadvantages of Each

For the sake of this article, we will focus on the sole proprietorship and partnership structures. A sole proprietorship offers many advantages. First of all, it’s easy to set up. Other advantages include being able to file your taxes on a Schedule C rather than having a drawn out form. It’s also the most popular methods among small businesses, especially those ran from the home. However, there are a few disadvantages. First of all, everything falls on the owner. This means that any debt the business acquires will be a personal debt. Last, but not least, it can be much harder to get financing.

The partnership also has many advantages. First of all, the business may be easier to run due to the fact that each owner may excel in different areas. There will also be someone to run the business should one of the partners become ill. Last, but not least, a partnership is easier to run because the liability of the business may be shared among owners. However, a partnership also has disadvantages. The first disadvantage is that a partnership is harder to set up. Another disadvantage is that the partnership may come to an end due to the partners becoming unhappy with each other. Last, but not least, one partner may end up being liable for all the debt.

Which Should You Choose?

The only people that can honestly help you make this decision is your attorney and accountant. There are a number of legal and financial issues that go with each business structure. This means that using the wrong business structure could end very badly.

As a new startup, you have the chance to pick your business structure, but you must do it carefully. Choosing the wrong business structure can lead to bad financial and legal consequences.