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[H1664]How To Structure A Business

by Jody Ehrhardt, Jod

Whether you are starting a small business from your home or opening a new, large operation, you will need to decide which business structure is better suited to you and your company's needs. There are four basic types of business structures: sole-proprietorships, partnerships, corporations and limited liabilities companies. The type of structure you choose will be determined by the type of business you own, the size of the business and many other individual actors. To make the best choice it is usually necessary to seek the advice of a lawyer that specializes in business law.

Before consulting a lawyer, however, it is a good idea to understand your options. The first option, sole-proprietorship, can only be used by an individual that is the only owner of the company. The only exception to this rule is if the owners are husband and wife. In a sole-proprietorship there is one very distinctive advantage and one equally distinctive disadvantage. The advantage to this structure is that there is no legal requirement necessary to form it. This means that you can create a sole-proprietorship for little if any cost and maintain it without further paperwork or legal filings. The disadvantage to this structure is that the individual that forms the sole-proprietorship is solely responsible for any debts incurred by the business. For example, if a customer were to sue your company, your personal assets could be used to pay off any judgment against your business.

In a partnership two separate individuals must own the business and the individuals must choose not to incorporate. As with a sole-proprietorship, no legal filings are required to establish this business structure but it is highly recommended that you at the very least draft an agreement between all parties involved. This document or contract can be drawn up by the partners but it is more advantageous to have a lawyer that specializes in business law draw it up for you. If you choose to draw up the contract yourself, be sure to include information regarding the financial responsibilities of each partner, the terms for the sharing of profits and losses and the responsibilities in decision making for each partner.

If you are thinking about choosing a corporation as your business structure it is important to know that each state sets forth its own requirements for the formation of a corporation. For details about these requirements it is best to consult a lawyer.

The advantage to organizing a corporation is that the liability for the company is limited to only what an individual puts into the company. This means that each individual owner does not have to worry about his or her personal finances or assets seized to pay off company debt.

The disadvantage to owning a corporation is the time it takes to maintain one. In a corporation, the company must elect a board of directors, write articles of incorporation and issue stock. Owners must also attend shareholder meetings and follow all corporate guidelines while running the business. Unless you own a large company with multiple employees, a corporation is usually not necessary.

Perhaps the best business structure is a limited liability company. This structure includes the advantages of each structure while minimizing the disadvantages. For example, in a limited liability company, the owners are not held personally responsible for company debt yet they are still able to run their company without issuing stock or holding corporate meetings. The biggest disadvantage is that there are legal requirements needed to create a limited liability company and an attorney must do the paperwork necessary to create one.

As with all legal agreements, there are many complex issues to keep in mind when making a decision. No matter which type of business structure you are likely to choose, it is best to consult a lawyer for advice on which structure with offer your company the best tax situation while still allowing protection for your assets.

Just putting your plan on paper before you open your doors for business is simply not enough. There are lots of other things to consider as an business owner. I think most people would agree with me that opening a business is not an easy task. The tasks to consider are not only detail oriented but also could be difficult to prioritize.

However boring and trivial some may seem could be the reason why most banks decline your loan application for a business loan if you ignore them. Did you know according to a study done by the U.S. government small businesses indicates that out of 15.7 million loan applications only 3% were approved.

I'm here to tell you if you're thinking about opening or already have a business, then building your business credit should be a major priority. If you find it too difficult or time consuming to achieve this task, then you should seriously consider hiring a good business authority to help guide you step-by-step on how to build your business credit.

One of the biggest mistakes most business owners make is not being able to structure their business properly to acquire a credit rating. Act now! Don't wait until you need financing. In this article, I'm going to give you some tips of what you need to consider and point out some major pit-falls to avoid when building your business credit.

Why is it important to establish excellent business credit?

I can think of many valid reasons why you should establish your business credit. First of all, you want to do everything you can to separate your business credit from your personal credit. You may want capital for overheads or perhaps purveyer credits for equipment and supplies; or credit cards for monthly miscellaneous expenses; maybe you're just tired of personally guaranteeing every loan you apply for.

As a reminder, your ability to have a loan of money does not necessarily mean you have to burden your business with debts. The idea is to have the ability to grow, make sound decisions to give you the upper hand to stay ahead of the competition.

Not having business credit is exactly the same as not being able to get financing. Your business credit history begins on the day you establish it. This rule is constant even if you've been in business for many years. No matter how booming your business maybe, business credit does not happen automatically.

When you go to the bank and apply for a loan the bank places your business on a scale and rates it on several different areas. This rating covers everything within your business. There is no omission. The bank will decline your application if you're missing just 1 item in your rating.

How do you know what your business is being rated on? If you send us your information we will send you a free Ebook that discusses the rating procedures.

Article Source : Legal Services Los Angeles

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Both Jody Ehrhardt & Richard Noah are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.

Jody Ehrhardt has sinced written about articles on various topics from Legal Matters, Green Card and Legal Matters. . Jody Ehrhardt's top article generates over 3600 views. to your Favourites.

Richard Noah has sinced written about articles on various topics from Tax, Management and Legal Matters. ? 2008 Copyright Richpie2. All rights reserved worldwide. - Pierre Hippolyte, The Business Solutions Guy, has consulted and helped thousands of people and their businesses throughout the U.S. successfully establish business credit and obtain business loan. Richard Noah's top article generates over 3600 views. to your Favourites.