Set Up Your Business Structure.

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The Business Structure

What is your business formation? Will you have business partners? Employees? These questions help you establish, secure and register your business with your city/state. This is a vital decision to avoid any legal matters falling on your head directly instead of the business. Before accepting ANY payment, giving ANY service or ANY product make sure you have registered properly.

Below you will find the different business structures that most start-ups. Use this tool when registering with your state.

  • Sole Proprietorship: A sole proprietorship is the fastest, easiest, and cheapest way to start your business. It doesn’t require any paperwork or cost. However, in a sole proprietorship, you and your business are viewed as a single entity, which can put your personal assets (i.e. home) at risk if you’re sued. Starting out, many home business owners use this structure, but eventually move on to form an LLC or other business structure.

  • Limited Liability Company (LLC): A safer business form than the sole proprietorship is a limited liability company (LLC), which sets up your business separate from you. This is an advantage because it separates your business assets from your personal ones (i.e. your house). If someone sues your business, they can't come after your house for money. If you hire a lawyer or use a legal resource, it can cost several hundred dollars, plus the fee your state charges. Or, you can do it yourself. Nolo offers several books on what’s required. It's not hard nor that expensive when you consider the advantages. But it is a legal entity so you want to make sure you do it right. Your state agency that regulates corporations will have information and you can probably apply online.

  • Partnership: If there’s more than one of you involved in the business, you’ll want to set up a partnership, which is more expensive and involved, but crucial to protecting all partners. Starting out, make sure you have defined rolls and percentage ownership and work determined. Partnerships can get messy, which is best thwarted by establishing all elements upfront.