If you are considering launching a business it is important to carefully consider what structure your business will take, as the type of business structure chosen can affect the owner’s liability, taxes, and paperwork that must be filed. The following is an overview of some common business types those in Indiana may consider.
Type 1: Sole proprietorships
A common type of business structure is the sole proprietorship, in which you are the sole owner and operator of your business. In fact, sole proprietorship is the default structure should you be the sole owner of the business and do not register it as any other business type. It is important to note that sole proprietorships are not separate entities. This means that the owners will be personally liable for the actions, obligations and debts of the business.
Type 2: Partnerships
If two or more people want to own a business together, they may choose to do so as a partnership. There are two common types of partnerships that may be worth considering if you are going to own a business with one or more other people: limited partnerships (LP) and limited liability partnerships (LLP).
An LP has one general partner who has unlimited liability and the remaining business partners have limited liability and generally limited control over the business, as documented through a partnership agreement. The general partner will generally have to pay self-employment taxes. An LLP is similar to an LP except that all owners in an LLP have limited liability, protecting them from the debts of the business and the actions of the other partners.
Type 3: Limited liability companies (LLC)
LLCs are a popular choice for those starting a new business, as they let owners enjoy the benefits of both a partnership and a corporation. Owners of an LLC are generally not personally liable for the actions, obligations and debts of the LLC and their personal assets will not be at stake if the business is sued or goes bankrupt. Members of an LLC will have to pay self-employment taxes and depending on state law in the absence of an agreement, if a member joins or leaves an LLC, the company may need to be dissolved and then re-formed.
Seek legal advice when starting a business
There are other types of business structures not covered in this post, and ultimately this post does not contain legal advice. Those in Indianapolis who want to learn more about common business structures may want to discuss their situation with an attorney, so they can make informed decisions moving forward.