Starting a new business can be a daunting task. There are hundreds of decisions to be made. Who, what, where, and when are not just for English class anymore. Another question that must be answered is “What form will my business be?" There are several factors to be considered and there are pros and cons for each type. In this article, I will try to briefly explain the differences between the business forms.



·Sole Proprietorship: Most people are familiar with this type of business. This form is one person or married couple that usually operate the business by themselves. This is the “Mom and Pop" type of store. The owner receives all of the income from the business but is also responsible for all for the liabilities that the business incurs. The income or loss is also reported on the personal income tax of the owner. Most small businesses are started as this form of business. This is the easiest of all of the types of businesses to open.

·General Partnership: In this type of business organization, there are two or more partners. The income is split between the partners, usually based on the amount of money or assets that each partner invests in the business and each must report his share of the income on his personal income tax form. Each of the partners have unlimited liability for the debts of the business partnership. Another drawback to this type is problems can arise between the partners. However, sometimes another opinion in a decision is just what a business needs.

·Limited Partnership: A limited partnership is similar to the general partnership. All of the general partners have an unlimited liability for the business debts. However, a limited partners liability, as the name implies, is limited to the amount of the contribution that he has made to the business. Usually, a limited partner does not have as much input as the other partners and like the other partnerships must report income on personal tax forms.

·Corporations: A Corporation is usually viewed as a separate legal entity with many of the rights and responsibilities of a person. The investors have limited liability; shareholders are not responsible for the corporation’s debts. The corporation files its taxes just like an individual. If the corporation makes a profit and distributes dividends, it cannot deduct the dividends from its taxes and the individual recipients must also pay taxes. Therefore, a corporation is taxed twice on its earnings. A corporation has other tax benefits that an individual does not.

·“S" Corporation: An “S" corporation provides the owners the benefit of being treated as a partnership on income tax, while also being treated as a corporation for other purposes.

·Limited Liability (LLC): All of the members in a limited liability company have limited liability for the debts of the business. This form of business is similar to an “S" corporation because it is usually treated as a partnership for income tax purposes, but has the benefit of limiting the liabilities of the owners.

This is a brief description of the types of business that can be operated. Each of them has many more variations that are not present in this article and an attorney should be consulted to aid you in your decision. Each form has its benefits and drawbacks and the decision should be weighed carefully.

Although corporations allow limited liability to the principals, many creditors such as banks, other companies, and landlords may require a personal guarantee from the shareholders. A partnership may be a good decision; although, one of the partners may be dealing with a “hard head."

Take your time to weigh the pros and cons of each type of business and pick the one that is right for you.