It is always advisable to evaluate the various forms of proprietorship systems before adapting one for your business. Some of the typical forms include : 

  • sole proprietorship
  • partnership
  • limited partnership
  • limited liability company (LLC)
  • corporation (for-profit)
  • nonprofit corporation (not-for-profit), and
  • cooperative.

 

Sole Proprietorship

 

Unlike incorporated companies, sole traders do not register with the government. No protocol has to be followed; simply start trading!

 

In the legal aspect, sole traders and their business are regarded as one entity. Hence, all profits or losses related to the business are included in the owner’s tax return document. All liabilities are also unlimited.

 

Sole traders operate in fields where unlimited liability is not a cause for great concern. For instance, a small service-providing firm could act as a sole trader since they have low chances of being served, nor will they be required to procure large sums of money for costs.

 

Advantages of sole traders include retaining all the profits to yourself, having full authority over the business, and no inceptive forms need to be filled. However, there are downsides to it too- the biggest of which is unlimited liability. This also gives rise to another concern: executives are unlikely to invest in the firm.

 

Partnerships

 

These are firms owned by at least two (maximum twenty) executives. Just like sole traders, no inceptive forms need to be submitted. The business starts just as they start trading. Partners are required to remit taxes on their part of the business’ income and set up provisions to account for the business’ external claims. Partners, like sole traders, could be eligible for the 20% tax reduction under the Tax Cuts and Jobs Act (TCJA).

 

Similar to sole traders, the partners in a partnership are bound to unlimited liability. Additionally, they share accountability for the other partners’ needs and the firms’ profits, losses, and power to influence decisions.

 

Limited Partnerships

 

This type of corporation entails the submission of hefty fees and intricate paperwork. As such, it is not advisable for regular entrepreneurs to adopt. They are set up by one individual or entity (known as the general partner), who will call for funds from the others (known as limited partners).

 

The responsibility for running the partnership’s daily activities rests upon the general partner. Provided they are not a limited liability company, the general partner is also fully accountable to the firm’s liabilities. In contrast to this, limited partners trade their authority over the business for limited liability. If you are seeking to set up this kind of business, be sure to discuss it with a limited partnership executive.

 

This kind of institutions are appealing to investors, and they also enjoy pass-through taxation. Limited partners are subject to limited liability too. However, general partners are not, and there is the possibility of disputes arising into the bargain. Inceptive fees also need to be remitted.

 

Limited Liability Companies (LLCs)

 

This is a more complex structure, but the benefits are substantial. For instance, the owners are not subject to unlimited liability. In the case of filing taxes, owners only need to remit them based on their share of profits.

 

LLCs are therefore congruous for businesses that are susceptible to getting served with a lawsuit or accumulating a lot of debt. They could also be a good idea for owners having prized possessions to avoid losing to unlimited liability.

 

As such, advantages of this type of structure include limited liability, cheaper filing fees, and adaptable systems. However, inceptive forms, fees and state franchise tax still need to be paid.

 

Corporation

 

This entails a very similar process to an LLC, with inceptive fees and limited liability for the owners. A corporation is also a distinct structure with an autonomous legal and tax body, unconnected to the management underlying it. This means that the administration or executives do not include taxes on business profits in their individual tax returns. The TCJA’s regulations require all corporations to remit a surcharge of 21%, which is a substantial deduction from previous records. The management shall pay personal tax only on the remuneration or other income they receive from the corporation.

 

Once again, just as an LLC, a corporation would be congruous for businesses that wish to safeguard their assets, are susceptible to getting served with a lawsuit, or accumulating a lot of debt.

 

A corporation is a magnetic structure for investors, where the owners can shift their claims easily. Additionally, they reserve limited liability rights. However, they could be costly to set up and run, with lots of fees and paperwork that need to be handled.

 

Not-for-Profit Corporations

 

These are organizations found to serve a specific objective- be it academic, philanthropic, pious or for research. They could gather capital by requesting contributions from the public and other corporations. As they are working to promote the welfare of the community, they are exempt from the tax requirements.

 

As such, they promote philanthropic causes, attracting benefactors and other participants in the process. They are also free from remitting taxes. However, it is essential to adhere to the legislations that apply to them and use incomes in favour of the cause only.

 

Cooperatives

 

Forming a business owned and handled jointly by all members may be a coveted goal for individuals. These owners may regard themselves as a team or a co-op, albeit neither of these is formal terms.

 

Examples of cooperatives include a customer co-op formed to manage a shoe store, wholesaler, etc. As a general rule, cities impose their own laws vis-à-vis the formation of cooperatives. Others may just need you to fill out forms in the state’s office to incorporate your organization.

 

While profits need to be divided amongst owners, cooperatives are an appealing company for consumers and workers alike. They are also eligible for soliciting state grants. However, not every state allows the formation of this kind of companies, and not every business sector has provisions where it would be feasible to form one.