Categories of Legal Structures for Small Business Types You Can Start

A Home Business Article Contributed by Elizabeth Fox-Wise

There is No Legal Structure for Small Business That is Best to Start

Whether you are better off starting your small business as a sole proprietorship or choosing one of the more complicated structures will be determined by examining several factors. When deciding which way to start your small business, you will need to consider the size and profitability of your small business, how many people will own the small business you want to start, and whether the small business will entail liability risks which are not covered by insurance.

If you are unable to make the determination on your own, it is always best to check with an attorney or an accountant before starting your small business.

The sub categories for the legal structures of a small business include sole proprietorship, partnerships, corporations, limited liability companies, and non profit corporations.

The Majority of Small Business Being Started is Either Sole Proprietorship or Partnerships

If you are starting a business by yourself, or with no one other than your spouse, then you will probably want to start as a sole proprietorship. This is by far the simplest legal structure.

In fact, a Sole proprietorship is so easy to set up and maintain that many people already own one and don't realize it. For example, if you are a freelance artist or writer, a craftsperson who takes jobs on a contract basis, a salesperson who receives only commissions, or an independent contractor who is paid by employer's separate from regular payroll, you are automatically classified as a sole proprietor.

Typically when starting a small business as a sole proprietor you do not have to file any special forms or pay any fees. You must declare your small business as a sole proprietorship when you complete the general registration required of all new businesses.

When you are starting your small business with another person you can not start a sole proprietorship, in most cases you will start a partnership. A partnership is the simplest and least expensive co-owned business structure to create and maintain.

Less Frequently a Small Business Might Start As a Corporation, Limited Liability Company, or Non Profit Corporations

Starting your small business as a corporation limits your personal liability for your small business debts. This option is not often chosen by the small business owner however, because running one takes more work. There is a lot more to starting and running a small business as a corporation than just filing a few forms. If running as a corporation records are extensive and an accountant is probably necessary.

Limited liability companies are said to combine the best aspects of both partnerships and corporations. Laws have changed in recent years, and you can now start your small business as an LLC with just one person in every state except Massachusetts, which requires an LLC to have two owners (technically called members).

Starting a small business as a nonprofit corporation requires some paperwork, but for some groups, the benefits are worth it. Since most small business owners are starting their small business to make a profit, this is not a common choice.