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How
To Choose The Proper Business Entity?
Dec 26, 2005
Author: Tom Perkins - Business Solutions Coach and Certified
Personal Trainer
Choosing
your business structure is just as important - if not more
important - than marketing. You should consult with your
accountant or your attorney in forming your business. The
process in setting up your company is as follows; these are
just the key points that need to be done, but not necessarily
in the exact order listed.
First,
you need to come up with a company name and ascertain if the
URL is available for that website. If the URL is available for
that name, the next step is to register that name with the
Secretary of State in the state that you reside in. At this
point, there are two options: One is to consult with your
accountant or CPA to decide if you should be a sole
proprietor, partnership, limited liability corporation or a
Corporation. At the very least, reserve the name with your
Secretary of State for a minimal fee while you decide what
business entity you should be.
Here
are the four types of business structures and a brief
explanation of each:
-
Sole
Proprietor - 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, less legal regulation,
and fewer taxes. However, the business owner is personally
liable for all debts incurred by the business.
-
Partnership
- A General
Partnership is composed of two or more persons
(usually not a married couple) who agree to contribute
money, labor, and/or skills 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.
-
Limited
Liability Corporation - A Limited Liability
Company (LLC) is composed of one or more individuals
or entities through a special written agreement. The
agreement includes: provisions for management, ability to
assign interests and distribution of profits and losses.
Limited liability companies are permitted to engage in any
lawful, for-profit business or activity other than banking
or insurance. LLC’s cannot have more than 35
shareholders.
-
Corporation
- A Corporation
is a more complex business structure. As a chartered
legal entity, 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.
As
you can see, each entity is somewhat different. In my opinion,
I would either be a limited liability corporation or
Corporation. There is a little bit more record keeping
involved for a corporation, but is by far, well worth the time
and effort that you expend. I attended to a financial seminar
about 15 years ago and I learned that if I could take
advantage of every deduction there was as, just a regular
working person, I might only be eligible for 70 different
deductions. If I owned a home there were a little over a
hundred deductions. If
I was in business for myself there were close to 200 available
deductions. Here is where things changed:
if I were a corporation, there were well over 300
deductions!
So,
the moral of the story is this; if you can be a corporation,
be a corporation, BUT you absolutely must talk to your
accountant or attorney before you make a determination of
which business entity you should be.
Tom
Perkins is a business solutions coach and certified personal
trainer who leads fitness professionals to profitability.
Send
an email to thecoach1-140208@autocontactor.com
to receive the Essential Fitness Business Success Checklist.
Or visit his website at http://www.fitnessindustrysolutions.com
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