One of the first things to decide when starting a business is deciding on a business type. It is nearly as important as deciding what good or service your business will provide. The reason is because of the legal, taxation and other ways that your business form will affect your business. The three most popular kinds of business formations are a sole proprietorship, a limited liability company and a corporation.
The simplest form of a business formation is the sole proprietorship. This is when one person is the owner of the business. The reason it is so simple is that it does not require the filing of paperwork or the payment of fees. All that is truly required to create a sole proprietorship is to begin doing business. To the same extent, the business stops when the sole owner passes.
For income tax purposes, there is no difference between the income of the business or the owner, regardless if the money is taken out of the business. That puts the business owner in an interesting legal position in regards to debts. That person also is also legally responsible for all of the debts and taxes from the business. If the business is unable to pay bills, then the creditors can take action against the owner. There is no signature protection if the owner is signing a loan note.
Another disadvantage about a sole proprietorship is that there is no easy way to get funding. You can’t have any investors put money into your business without changing the structure. Before making a decision about your business structure, consider what is best for your business. Contact a knowledgeable business law attorney in DuPage County who can help with forming your business.
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