Organizing Your Business
Organizing Your Business
Organizing your business as a sole proprietorship, partnership, corporation, or other structure depends on the ownership, activities, risks, investments, and liabilities. It is important to consult with professionals to guide you as you decide. For any legal structure other than sole proprietorship, register the appropriate documents with the State Corporation Commission.
Types of business structures
A Sole Proprietorship is one individual or married couple in business alone. Sole proprietorships are the most common form of business structure. This type of business is simple to form and operate, and may enjoy greater flexibility of management, fewer legal controls, and fewer taxes. However, the business owner is personally liable for all debts incurred by the business.
A General Partnership is composed of two or more persons (usually not a married couple) who agree to contribute money, labor, or skill to a business. Each partner shares the profits, losses, and management of the business, and each partner is personally and equally liable for debts of the partnership. Formal terms of the partnership are usually contained in a written partnership agreement.
A Limited Partnership is composed of one or more general partners and one or more limited partners. The general partners manage the business and share fully in its profits and losses. Limited partners share in the profits of the business, but their losses are limited to the extent of their investment. Limited partners are usually not involved in the day-to-day operations of the business.
Limited Liability Partnership (LLP)
A Limited Liability Partnership (LLP) is similar to a General Partnership except that normally a partner doesn’t have personal liability for the negligence of another partner. This business structure is used most by professionals, such as accountants and lawyers.
Limited Liability Limited Partnership (LLLP)
A Limited Liability Limited Partnership is a Limited Partnership that chooses to become an LLLP by including a statement to that effect in its certificate of limited partnership. This type of business structure may shield general partners from liability for obligations of the LLLP.
A Corporation is a more complex business structure. A corporation has certain rights, privileges, and liabilities beyond those of an individual. Doing business as a corporation may yield tax or financial benefits, but these can be offset by other considerations, such as increased licensing fees or decreased personal control. Corporations may be formed for profit or nonprofit purposes.
A Nonprofit Corporation is a legal entity and is typically run to further an ideal or goal rather than in the interests of profit. Many nonprofits serve the public interest, but some engage in private sector activities.
Limited Liability Company (LLC)
A Limited Liability Company (LLC) is formed by one or more individuals or entities through a special written agreement. The agreement details the organization of the LLC, including provisions for management, assignability of interests, and distribution of profits and losses. LLCs are permitted to engage in any lawful, for-profit business or activity other than banking or insurance.