Starting a small business is a huge undertaking. There are so many things to think about and so many decisions to make that it can be overwhelming. But don’t worry, we’re here to help. In this article, we’ll cover everything you need to know before you start a small business, from choosing the right business structure to obtaining the necessary licenses and permits. By the time you’re finished reading this article, you’ll be ready to start your own small business.
What Is a Small Business?
A small business is a privately owned company with fewer than 500 employees. These businesses make up more than 99% of all businesses in the United States, according to the Small Business Administration (SBA). They also generate about two-thirds of all new jobs in the US each year.
Types of Small Businesses
There are many different types of small businesses, but they can generally be classified into one of four categories:
- Sole proprietorships
- Partnerships
- Corporations
- Limited liability companies (LLCs)
Sole Proprietorships
A sole proprietorship is a business that is owned and operated by one person. The owner is personally liable for all debts and obligations related to the business. This is the simplest and most common type of small business.
Partnerships
A partnership is a business that is owned and operated by two or more people. Like a sole proprietorship, the owners are personally liable for all debts and obligations related to the business. Partnerships can be either general partnerships or limited partnerships.
Corporations
A corporation is a business that is legally separate from its owners. The owners, or shareholders, are not personally liable for the debts and obligations of the corporation. This type of business is more complex than a sole proprietorship or partnership and often requires professional help to set up.
Limited Liability Companies (LLCs)
An LLC is a business that offers its owners limited liability protection while still allowing them to operate as a sole proprietor or partnership. LLCs are becoming increasingly popular, especially among small businesses.
What Are the Different Business Structures?
When you’re starting a small business, one of the first decisions you’ll need to make is what type of business structure to use. The most common types of business structures are sole proprietorships, partnerships, corporations, and LLCs. Each has its own advantages and disadvantages, so it’s important to choose the right one for your business.
Sole Proprietorship
Advantages:
- Simple and easy to set up
- No paperwork or filing fees
- Can be cheaper than other business structures
Disadvantages:
- Unlimited liability – you’re personally responsible for all debts and obligations of the business
- May have difficulty raising capital – banks may be reluctant to lend money to a sole proprietor
Partnership
Advantages:
- Simple and easy to set up
- Can be cheaper than other business structures
- Can raise capital by selling equity in the business
Disadvantages:
- Unlimited liability – you’re personally responsible for all debts and obligations of the business
- May have disagreements with your partners that need to be resolved
Corporation
Advantages:
- Limited liability – shareholders are not personally responsible for the debts and obligations of the corporation
- Can raise capital by selling equity in the business
- Professional status – corporations are often seen as more professional than sole proprietorships or partnerships
Disadvantages:
- More expensive and complex to set up than other business structures
- May be required to file additional paperwork with state and federal governments
Limited Liability Company (LLC)
Advantages:
- Limited liability – members are not personally responsible for the debts and obligations of the LLC
- Can be cheaper and simpler to set up than a corporation
Disadvantages:
- May have difficulty raising capital – banks may be reluctant to lend money to an LLC
- Members may still be personally liable for certain debts and obligations, depending on state law
Now that you know the different types of business structures, you can decide which one is right for your business. If you’re still not sure, it’s a good idea to consult with an attorney or accountant who can help you choose the best structure for your business.
Conclusion:
The most common types of business structures are sole proprietorships, partnerships, corporations, and LLCs. Each has its own advantages and disadvantages, so it’s important to choose the right one for your business. If you’re still not sure which structure to use, it’s a good idea to consult with an attorney or accountant who can help you choose the best option for your business.
