How Should You Structure Your Business? Small Business Ownership Options

When it comes to starting up your business, there are many factors to consider. How should you structure it and what does ownership really mean? There are several different types of small business models to consider. There are also startup costs and procedures to follow to make sure you’re complying with the law. We’re here to help break down different business structures and what to know before you open your doors. 

Registering Your Business

Starting a business includes registration with the government. It’s important to choose the business ownership structure that works best for you to get off on the right foot. Some areas to consider include the cost of starting a business, the forms of business ownership, staffing, hours of operation and expenses once off the ground. 

Types of Small Business Ownership Structures

There are many different business structure types to take into account when starting a business. Compare the pros and cons of each to determine what may work best for you. 

Sole Proprietorship

A sole proprietorship is a business owned and controlled by a single individual or company without any partners. This option is the least expensive and can be good for low-risk businesses. When you’re the small business owner, it can be an easier way to have a personal income stream. 

General Partnership

A general partnership is a business structure that has two or more people, each being referred to as a general partner. With this type of business, you as a partner have equal rights and responsibilities to the business, including profits and losses and the potential for personal liability. 

Limited Partnership

A limited partnership, sometimes referred to as an LP, is a business structure that provides liability protection for some partners. When entering into a limited partnership, you’ll want to establish a partnership agreement to determine the balance of power amongst the partners. 

Limited Liability Company (LLC)

A limited liability company (LLC) is a common business structure. LLCs separate the company from its owners, or in other words, separate business and personal finances. Additionally, people often choose to establish an LLC because of the flexible taxation options while also limiting liability for debts and losses the company incurs. 

C Corporation

A C corporation, or C-corp, is a form of business that separates the company’s assets from the owners’ assets. C-corps pay taxes at the corporate level, so the profits are taxed at both a corporate and personal levels, which creates double taxation. These businesses can offer their employees stock options in the company as part of their compensation package. 

S Corporation

According to the IRS, S corporations, otherwise known as an S corps, are businesses that avoid the double-taxation disadvantage of C-corps. While this type of business can choose to pass their tax liability for corporate income, losses, deductions and credits to their shareholders, it has its limits. Eligibility criteria for an S corp are:

• Only one class of stock 
• Have no more than 100 shareholders 
• Shareholders must be individuals, certain trusts and estates or tax-exempt organizations

B Corporation

A B corporation is a for-profit business structure that has certification from B Lab, a non-profit organization, that measures the social and environmental impacts of the company. There are over 6,000 certified B corps in the world. 

Assessing Your Business Goals and Needs

Once you’ve determined which business structure may work best for you, you’ll want to take into consideration what it will take for your business to be successful in the long term. 

Time and Money

At the core of every business is time and money. You’ll need to have a financial plan established to handle paperwork and fees to register your business. You may also need to plan for additional fees such as employees, renting or purchasing a workspace and attorney fees you may incur. Be prepared to report your income of your business to the IRS come tax season. 

Level of Ownership Control

When it comes to running your business, you’ll want to define your involvement in the operations. From the business decisions to the investment you make in the company, establishing the level of ownership and control you wish to have over your business is necessary. 

Tax Liability

Opening a new business means you’re subject to more taxes. As a business owner, you’ll want to familiarize yourself with double taxation and how your business affects your personal tax return. And when tax time rolls around, having your business tax organization in good order can help make the process easier. 

Personal Liability and Risk

Another consideration when it comes to opening a business is the personal liability and risk to yourself. You will likely undertake financial responsibility for your business and any successes or failures it has. You will also have ownership of any personal property related to the business, including all aspects of your business except land and buildings. 

Business Longevity and Succession

Of course, you want to see your business have a long and successful life. When you’re ready to make moves that promote business growth, consider the costs and risks involved with this expansion. And when the time comes for a business transition, you’ll have to decide whether you want to dissolve your business or pass down your business. 

Ensure Your Business Is Protected

No matter what type of business you’re wanting to start, be sure to take into consideration all aspects of becoming a business owner. From startup costs and determining which type of business you want to have to growing your business and passing it down to the next generation, your local Farm Bureau agent can help you map out your future. Contact them today to start the conversation.