Small Business Ownership Structures
The long term success of any small business greatly depends on the kind of legal ownership structure it follows. The ownership structure defines the tax liabilities, benefits, annual sales and eventually net profits. Your personal liability is also very much dependent on the kind of partnership you choose for your business.
All countries have different laws regarding ownership, but there are certain common ways of organizing your business. Listed below are some of the common ownership structures so that you are aware of different options available to you.
Sole proprietorship
In the case of sole proprietorship, it is your own personal business with no other party involved in making any decisions. All the debts and loans are to be paid by the owner only. The owner has full control of the business and this leads to complete freedom and full liability of the decisions.
Partnership
This type of small business has more than one business owner. All the decisions are made collectively by the owners and the profits and losses are shared as per the percentage agreed upon. The agreement is signed between the consenting parties regarding all the legal obligations for clarity on business assets.
Limited liability partnership
LLP or limited liability partnership is the business structure in which one owner is not liable for any actions of the other co-owner. The misconduct or problems due to negligence are sole responsibility of the guilty partner. Such kind of ownership dissolves automatically if one person dies.
Corporation
This ownership structure for small business eases liability of debts and any other judicial issues. The owners need to file papers and get this arrangement registered through lawyers or accountants. Here, the corporation becomes an independent entity and all the tax, debt payment, salaries, bonuses etc. are processed in the name of corporation only, instead of individual owners.
You must keep in mind the pros and cons of different ownership structures before making any decision. Get in touch with your local administration to ascertain the legal structures allowed in your country and state. As a small business owner, you should not ignore this important aspect as it may decide the future course of your business.
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Tags: corporation, legal ownership structure, limited liability partnership, partnership, Small Business, sole proprietorship