As the founder and owner of Umbrella Management Group, LLC, Justin Ayars utilizes his experience as an attorney to provide expert legal and management services, helping companies to manage their business affairs. Possessing extensive experience, Justin Ayars offers the following definitions of the various legal forms your business can take.
1. Sole Proprietorship: You can structure your business as a sole proprietorship if you are the sole owner and do not wish to maintain a corporate structure. The sole proprietorship is the simplest form in which you can organize your business and the least expensive to set up because the government does not require any specific application process. However, it is important to note that a sole proprietorship leaves you solely liable for any debts, and if your business defaults on these, your personal property may be seized.
2. Partnership: If you plan to co-own your business with one or more people, then the simplest legal form you can select is a partnership. Partnerships can take three forms: general, limited, or joint venture. In a general partnership, all owners divide responsibilities, liabilities, and profits equitably. In a limited partnership, managing partners assume liability for the business, while limited partners only risk any money they have invested in the company. Joint ventures function like general partnerships, but only for a single project or venture. No government forms are required to establish a partnership.
3. Limited liability corporation (LLC): This type of incorporation protects all business owners from personal liability for company debts. While you are required to file incorporation with the state, the limitation of liability provides a distinct advantage. Likewise, LLCs possess a pass-through tax structure that allows partners to file their income from the companies on their personal income taxes, although they may be liable for self-employment taxes. Each of the principles outlines the responsibilities, liabilities, and percentage of profits received in an Articles of Incorporation.
4. Corporations: A corporation exists as a business entity. Like an LLC, liability of the owners is limited. However, corporations have no pass-through provision. Profits and losses are taxable to the corporation, not the owners. Thus, the corporation files taxes as an entity.
5. Nonprofits: The entities exist for the public good. As such, they may be exempt from paying taxes on income or contributions.