Sole Proprietorship, Partnership or Corporation: Which One’s for You?
Getting into a business venture requires more than just having a plausible idea, knowledge of your market and industry; and having an excellent product or service to offer.
An essential aspect that you will have to consider before starting your business is whether you want to go it alone or you want other people to start it with you. There are pros and cons to both options and studying each one carefully can help you decide whether you’d rather go for sole proprietorship, a partnership or a corporation.
Two things that can help you decide which one is best for you are the scope of liabilities for each option, and capital.
Sole Proprietorship or Partnership
If you want to go it alone, the first thing to think about is the capital. Do you have enough money to invest in your business, run it for some time without much profit until it can get fully off the ground?
While going solo means you won’t have to deal with partners who could become a liability to the business and clash heads when you don’t agree on certain issues; carrying the burden of running a business on your own may be too much to handle.
There have been occasions also where partners experience a falling out because of disagreements. No matter how good your relationship is prior to opening your business, things could turn ugly once issues about the business arise and differences of opinions come out in the open.
Generally, liabilities in sole proprietorship and partnerships are similar in a way that everyone involved in the business will have to pay their own taxes based on their tax grades.
In a corporation, each member of the company has a limited liability. While the members will be required to file their own taxes separate from that of the corporation’s; the liabilities when it comes to debts are solely the corporation’s.
For corporations, there are normally deductible taxes from the income like payments on health or medical insurance. On the other hand, if you have dividends, these will still be included in your tax computations plus the beneficiaries of the shareholders’ dividends will also be required to pay separate taxes on the dividends.
Prior to starting your business, it is best to review all your options especially regulations on tax payments and liabilities since these factors will greatly affect your business. Seeking the help of a legal adviser could help you decide which one is for you.