By Deanna Parmenter

Okay, so you’ve decided to start a business.  You’ve identified your specialty, have the start up funds (hopefully), and have even picked out a name.  Congratulations!  Your next step is to decide how your business will be structured.  Should it be a corporation?  Are you going into business with a partner?  Do you want to have total control of the business?  And what the heck is that LLC that you’ve heard about?

There are four basic business structures you can choose from when starting your business.

1. Sole proprietorship.  This type of business is owned and run by one person.  There is no legal distinction between you and the business.
    
2. Partnership.  A partnership is formed when one or more people (owners) join together to run the business.  The partners share profits and losses.
    
3. Corporation.  A legal structure created by the state which has its own legal identity.  The corporation owns the assets and liabilities of the business.
    
4. LLC.  This is a special type of business structure meaning Limited Liability Company.  It is a hybrid business structure having characteristics like a corporation, but run as a partnership or a sole proprietorship depending on how many owners there are. 

Here are some things to consider when choosing a business structure:

1. Liability.  If you set up your business as a sole proprietorship or a partnership, you (and your partners if you have any) are directly liable for any of the business’s debts.  If someone sues the business, that person can go after you if the business does not have enough money to cover the claim.  A corporation and an LLC have limited liability, which means that only the money you have put into the company can be taken to pay a debt or settle a lawsuit.
    
2. Access to funds.  In today’s financial markets, it’s hard for anyone to get a loan.  But banks are more willing to lend to a corporation than to any other form of business ownership.  Why?  Because corporations tend to be more stable.
    
3. Type of business.  Decide on what type of business you will have.  Some businesses work better as a sole proprietorship or partnership.  Others work better as a corporation.  Running a business out of your home?  Then probably a sole proprietorship is best.  Opening a mechanic’s garage.  A corporation might be the better answer. 
    
4. Access to resources.  Partnerships can be a great way to bring in additional resources, but be prepared to share the profits and lose some control over the day to day decisions in return.
    
5. Control.  The final decision will depend on how much control you want to keep over the business. There is no right or wrong answer, and you can always change from one structure to another as your business grows.

Hopefully, the type of business you are starting and your own circumstances will make the choice an easy one.   More information on this topic can be found on the IRS web site.