Business Legal Structures

Business Legal Structures by BB Lee (C)2007

Before you start your own home based business or small business you must consider the legal structure.

Most work at home business ventures are started by an individual who works solo.

This is considered a sole proprietorship. Even though this is often true it is still beneficial to know the three common business structures so that if your business changes in the future you will be able to adapt your business structure to suit the new situation.

This brief article will take a look at one of the three typical business structures, the advantages along with disadvantages. Future articles will cover partnerships, corporations.

Sole Proprietorship

The sole proprietorship is defined as a business owned and operated by one person. To start this type of business all you need to obtain is a business license or permit if required, and open your business. This is considered the most common type of small or home based business.

Advantages

Let's take a quick look at typical sole proprietorship advantages.

Easy to start: A sole proprietorship is the easiest and simplest form of business to start. There are fewer legal restrictions. You can start the business using your own name legally. For example, if your name were Fred Smitz. You could start the business under your name without any problems. Or simply name it Fred Smitz's Company. If you decide to hire employee's later on you will need to register your business with the federal government. State and local registration might also be required.

Profits: As sole owner of the business you do not have to share your profits with anyone. And you make all the required financial decisions.

Control: You are in complete control of the business. Your word is final. No business partners to interfere in decisions.

Quick Action: You are able to quickly respond to any business situation without having to consider other management decisions or partner input. Quick action in a crisis is often important to overall business success.

Taxes: There are no special extra taxes for this business form. Profits become the owner's personal income and are taxed in that manner.

Disadvantages

Unlimited Liability: As the sole proprietor of your home based or small business you will be responsible for all the debts that your business will incur. These might easily exceed your initial investment quite quickly. It is important that you are aware your business liability will also extend to your personal property.

Less Money: Capital is limited to your personal assets or the money that you borrow and invest in your business. This business startup historically has less capital available than other business structures. Also, sole business owners usually have more difficulty borrowing money to invest in the business.

Business Emergencies: If you get sick or are injured your business will suffer. You will not have a business partner or others to rely on to handle your business.

Limited Experience: You will rely solely on your own business experience which might be quite limited. And you will not be able to share view points or compare with others with more experience in other areas.

Deductions: Sole proprietos miss out on a boat load of business deductions available to other business structures. These inclue workers compensation and certain health and insurance coverage.

Many consider the sole proprietorship advantages out- weigh the disadvantages. And this might be true in your business situation..

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