At the onset of starting a business, you need to make sure to structure the business in a way that makes sense for your needs. Each type of business structure comes with its own unique set of tax and legal implications. This makes it imperative for an owner to fully research available options and work with a law firm that understands formation and structuring of ownership interests.
At Phillips & Angley, we work with all types of business owners throughout Massachusetts. From small, family-owned and operated businesses to large corporations, we are the law firm you can turn to with all your legal business needs, including formation. To understand the different options, it is best to sit down with an attorney and talk about the business goals and plans.
In this post, though, we aim to provide you with a brief overview of some of the more common business structures.
Sole proprietorship: This is the most basic and common type of ownership. The business owner is the only one who owns and operates the business and is therefore responsible for all assets and debts.
Partnership: There are a number of different types of partnerships. As the name of this structure suggests, in a partnership there are at least two or more people — partners — who own the business together. Each partner is involved in the decision-making and has a certain share in the profits, as well as any losses.
Cooperative: When thinking of the structure of a cooperative, a co-op grocery store is a great example. In these structures, the people — or user-owners — who use the services are the same people who own and operate the business. A board typically runs the cooperative, while the members are the ones with voting power on the direction of the business.
Limited Liability Company: An LLC is a combination of a corporation and a partnership. Owners of are referred to as members. However, unlike a corporation where shareholders are taxed as a separate business entity, in an LLC there is no separation. This means the profits and losses are passed on to each member of the LLC. These members then report these profits and losses on their personal federal tax returns, which is what the owner of a partnership does.
In addition to these types of structures, there are corporations. These structures are typically for larger, more established companies with multiple employees. Forming a corporation is a complex legal process with varying regulations. An attorney will be able to provide more information on the specifics and pros and cons of the different corporation options.