Business Legal Structures

Business Legal Structures

Before you start your own home based business or small business
you must consider the legal structure.

Most work at home business ventures are started by an individual
who works solo.

This is considered a sole proprietorship. Even though this is
often true it is still beneficial to know the three common
business structures so that if your business changes in
the future you will be able to adapt your business
structure to suit the new situation.

This brief article will take a look at one of the three
typical business structures, the advantages along with
disadvantages. Future articles will cover partnerships,
incorporations.

Sole Proprietorship

The sole proprietorship is defined as a business owned
and operated by one person. To start this type of business
all you need to obtain is a business license or permit if
required, and open your business. This is considered the most
common type of small or home based business.

Advantages
Let's take a quick look at typical sole proprietorship advantages.

Easy to start: A sole proprietorship is the easiest and
simplest form of business to start. There are fewer legal
restrictions. You can start the business using your own
name legally. For example, if your name were Fred Smitz. You
could start the business under your name without any problems.
Or simply name it Fred Smitz's Company. If you decide to hire
employee's later on you will need to register your business
with the federal government. State and local registration
might also be required.

Profits: As sole owner of the business you do not have to share
your profits with anyone. And you make all the required financial
decisions.

Control: You are in complete control of the business. Your word
is final. No business partners to interfere in decisions.

Quick Action: You are able to quickly respond to any business
situation without having to consider other management decisions
or partner input. Quick action in a crisis is often important to overall
business success.

Taxes: There are no special extra taxes for this business form.
Profits become the owner's personal income and are taxed in that
manner.

Disadvantages

Unlimited Liability: As the sole proprietor of your home based
or small business you will be responsible for all the debts that
your business will incur. These might easily exceed your
initial investment quite quickly. It is important that you are
aware your business liability will also extend to your personal
property.

Less Money: Capital is limited to your personal assets or
the money that you borrow and invest in your business.
This business startup historically has less capital available than
other business structures. Also, sole business owners usually
have more difficulty borrowing money to invest in the business.

Business Emergencies: If you get sick or are injured your business
will suffer. You will not have a business partner or others to
rely on to handle your business.

Limited Experience: You will rely solely on your own business
experience which might be quite limited. And you will not be
able to share view points or compare with others with more
experience in other areas.

Deductions: Sole proprietos miss out on a boat load of
business deductions available to other business structures.
These inclue workers compensation and certain health and
insurance coverage.


Many consider the sole proprietorship advantages out- weigh
the disadvantages. And this might be true in your business
situation..

Article Written
by BB Lee (C)2007