Choosing Your Legal Structure

Sole Proprietorship

A sole proprietorship - a type of business entity which legally has no separate existence from its owner. Hence, the limitations of liability enjoyed by a corporation and limited liability partnerships do not apply to sole proprietors. All debts of the business are debts of the owner. The person who sets up the company has sole responsibility for the company's debts. It is a "sole" proprietorship in the sense that the owner has no partners. A sole proprietorship essentially refers to a natural person (individual) doing business in his or her own name and in which there is only one owner. A sole proprietorship is not a corporation; it does not pay corporate taxes, but rather the person who organized the business pays personal income taxes on the profits made, making accounting much simpler. A sole proprietorship does not have to be concerned with double taxation, as a corporate entity would have to.

A sole proprietor may do business with a trade name other than his or her legal name. In some jurisdictions, for example the United States, the sole proprietor is required to register the trade name or "Doing Business As" with a government agency. This also allows the proprietor to open a business account with banking institutions. (Source: Wikipedia)

Under a sole proprietorship, you can lose your personal assets, (home and car, etc.) if you go bankrupt.

Partnership

A partnership is a type of business entity in which partners (owners) share with each other the profits or losses of the business undertaking in which all have invested. Partnerships are often favored over corporations for taxation purposes, as the partnership structure does not generally incur a tax on profits before it is distributed to the partners (i.e. there is no dividend tax levied). However, depending on the partnership structure and the jurisdiction in which it operates, owners of a partnership may be exposed to greater personal liability than they would as shareholders of a corporation. (source: Wikipedia)

Make sure you have buy-out insurance for each partner

Joint Venture

A joint venture (often abbreviated JV) is an entity formed between two or more parties to undertake economic activity together. The parties agree to create a new entity by both contributing equity, and they then share in the revenues, expenses, and control of the enterprise. The venture can be for one specific project only, or a continuing business relationship such as the Sony Ericsson joint venture. This is in contrast to a strategic alliance, which involves no equity stake by the participants, and is a much less rigid arrangement. (Source: wikipedia)

Corporation

A corporation is a legal entity separate from the persons that form it. It is a legal entity owned by individual stockholders. In British tradition it is the term designating a body corporate, where it can be either a corporation sole (an office held by an individual natural person, which is a legal entity separate from that person) or a corporation aggregate (involving more persons). In American and, increasingly, international usage, the term denotes a body corporate formed to conduct business, and this meaning of corporation is discussed in the remaining part of this entry (the limited company in British usage).

You will need incorporation papers and bylaws. Also, make sure the articles of incorporation are tailored to your business. Your will need to learn the reporting requirements, comply with federal, state, and local corporate laws, You will also need to know the tax obligations and how to register your corporation. (Source: Wikipedia)

S Corporation

An S corporation or S-corp, for United States federal income tax purposes, is a corporation that makes a valid election to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code.

In general, S Corporations do not pay any income taxes. Instead, the corporation's income or losses are divided among and passed through to its shareholders. The shareholders must then report the income or loss on their own individual income tax returns.

Ask your Lawyer or Accountant if you meet the qualifications for an S Corporation and if the structure will benefit you. They can also help you incorporate your business. (Source: wikipedia)

Limited Liability Company (LLC)

A limited liability company (abbreviated L.L.C. or LLC) in the law of the vast majority of United States jurisdictions is a legal form of business company giving limited liability to its owners. Often incorrectly called a "limited liability corporation" (instead of company), it is a hybrid business entity having characteristics of both a corporation and a partnership. It is often more flexible than a corporation or partnership, in that the owners have limited liability for the actions and debts of the company, and it is suitable for smaller companies with a single owner. The primary characteristic of a corporation is limited liability, and the primary characteristic of a partnership is the availability of pass-through income taxation. (Source: wikipedia)