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Published : November 04, 2014 | Author : Pranati Shubha
Category : Company Law | Total Views : 1926 | Rating :

Pranati Shubha


Business structures available for a start up

To start a business, one of the most poignant questions is regarding the structure of the business. These phenomena could be a ticklish one as the structure remains annexed to the business for life and would also decide the fate for it. There are a number of structures that could be taken up for a start up business and also the perils tethered to it.

One of the most celebrated legal structures is sole proprietorship. The expenses and income from the business are included on your personal income tax return. This is one of the most elementary and low-cost options available especially if the business is based on a virgin concept. But there are some frailties attached with this structure like the owner remains on the hook for all the company’s liabilities. So, this kind of structure is best suited for those owners who have paltry number of employees and is a modish one.

An option available for a start up is partnership. There are basically two types of partnerships: general and limited. In general partnership in case of default the creditor can go against any or all of the partners. But in a limited partnership the liability remains only to a general partner with unlimited personal liability and limited partners whose liability is generally limited they have invested in the company. This structure is again relatively low-cost and an easy option. One major risk attached to this structure is general partners can be personally at jeopardy even though some other partner is responsible for dissolution. This structure is generally very common in real estate industry.

A start up can be started as a corporation. A corporation is basically an independent legal entity and it is separate from its owner which means it has a stauncher shield from personal liability. The S-corporation is more conventional whereas C-corporation is for high profile ventures. The corporation is held responsible to a board of directors along with the shareholders. One of the greatest advantages with this structure is that the consolidated debt does not come to its owners and hence the owners do not run the risk of their personal assets. But this structure is expensive and complex with respect to the other two structures. This structure is best suited for manufacturers and restaurants.

Another form of start up which has emerged with time is Limited Liability Company. In this structure the earnings and losses cut through the owners and are included in their personal tax returns. LLC’s provide better liability shield than corporation and is less expensive to set up. But depending upon how the specific entity is taxed one might have to pay self-employment tax on the share of draw. This structure is best suited for the business which is quite naive in the market and is unwary about its growth rate in the initial years.

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Article Comments

Posted by SIBAANANDA JENA on October 21, 2015
Dear Mam,
I want to establise a service provider company, so i request you to suggest me.

Sibaananda jena

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