Forms of Business Organization
(provided by the Missouri Small Business and Technology Development Centers) One of the first decisions that you will have to make as a business owner is how the business should be structured. All businesses must adopt some legal configuration that defines the rights and liabilities of participants in the business’s ownership, control, personal liability, life span, and financial structure. This decision will have long-term implications, so you may want to consult with an accountant and attorney to help you select the form of ownership that is right for you. In making a choice, you will want to take into account the following: •Your vision regarding the size and nature of your business. •The level of control you wish to have.
•The level of “structure” you are willing to deal with. •The business’s vulnerability to lawsuits.
•Tax implications of the different organizational structures. •Expected profit (or loss) of the business.
•Whether or not you need to re-invest earnings into the business. •Your need for access to cash out of the business for yourself. An overview of the four basic legal forms of organization: Sole Proprietorship; Partnerships; Corporations and Limited Liability Company follows. Sole Proprietorship
The vast majority of small businesses start out as sole proprietorships. These firms are owned by one person, usually the individual who has day-to-day responsibility for running the business. Sole proprietorships own all the assets of the business and the profits generated by it. They also assume complete responsibility for any of its liabilities or debts. In the eyes of the law and the public, you are one in the same with the business. Advantages of a Sole Proprietorship
• Easiest and least expensive form of ownership to organize. • Sole proprietors are in complete control, and within the parameters of the law, may make decisions as they see fit. • Profits from the business flow-through directly to the...
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