Decide The Proper Legal Structure For Your Business
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Can you think of the proper legal organization for your small business? Legal structure refers to the organizational set up of a business. Deciding on the type of your business' legal structure is important, as it will have an impact on the conduct and operation of your business, including your tax payments and personal financial obligations.
The single proprietorship, the partnership and the corporation are the basic business legal structure.
The sole proprietorship which is owned by just one person is the simplest and easiest to organize business legal structure. The business being personally owned by an individual, business profits are taxed as personal income of the business owner. One of the disadvantages of a proprietorship is that the owner including his assets is liable for any losses or indebtedness of the business. At least two persons must file for a partnership type of business. Like a sole proprietor, the partners are similarly but proportionately responsible for the tax obligations and any losses of the partnership. Because the corporation is a more intricate organization than either the proprietorship or partnership, and it is also harder to put up. The owners and investors have different legal personalities from the corporation; this applies to income and taxation and they also are not liable for corporate tax obligations or indebtedness.
If a businessman wants to save money on taxes, he may want to establish an S-Corporation or Single Person Corporation. Considered as an employee of the corporation, they receive a salary and pay their income taxes based on that salary. What is left of the business profit is considered as dividend due to them as the sole incorporator and this is type of income is taxed lower. So, the S-Corporation owner is able to avoid paying higher taxes and in the process save money by dividing the income into salaries and dividends.
The businessman should note that many big and successful business outfits began either as single proprietorship or partnership. The advantage of this type of business structure for a small business is that there is minimum paperwork, the filing process is easy to accomplish and the possibility of losses and legal liabilities are reduced to the minimum. A soon as your business becomes more complicated in terms of risks, obligations and capital, you should consider converting to a corporation, where your financial exposure is limited to your investments and you will have better opportunities of raising additional capital.
Article Source: Articlelogy.com
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