How to choose the right business structure

When deciding to embark on the road to being an entrepreneur, it is crucial to take some time to decide what type of structure you are going to organize under. There are three main types of business structures common among entrepreneurs: Sole Proprietor, Corporation, LLC (Limited Liability Corporation or Company).

Sole Proprietorship is a business structure that many entrepreneurs choose. There are two main reasons of which they do so:

•  It's inexpensive to form (in Michigan, the fee is only $10.00)
• There's less paperwork involved

While forming a sole proprietorship may prove to be the least expensive and simple to form, there are three major reasons why I suggest you don't go this route:

• You are personally liable for everything
• If someone decides to sue your company, they are actually suing you, because you are liable for all of the business debts as well as your own. If the person is awarded a judgment against you, that judgement will appear on your personal credit report.
• Sole proprietors often find it more difficult to borrow money to start or grow their businesses because lenders fear that if something were to happen to the business owner, the debt will not be repaid.

Corporations are often expensive to form, however, the major reason people form them is because these business owners can enjoy limited liability. In other words, they are only responsible for their own personal debts and not those of the business.

• Corporations are heavily regulated by the state, and owners face double taxation. Double taxation means that the profits of corporations are taxed twice.

The LLC, or Limited Liability Corporation (Company) is fairly simple to form. LLC owners are taxed like partnerships, which means you only pay taxes on your own personal income. A big plus of the LLC is that its owners enjoy the benefits of limited liability as does the corporation.
So, which structure is for you?
To sum it all up:

• The sole proprietorship is the easiest and least expensive to form but the owner is responsible for all debt.
• The corporation is the most expensive to form, but the owners are only responsible for their personal debts. Corporations are also heavily regulated and double taxed.
• LLC's are fairly simply to form, are taxed only on personal income and owners enjoy some of the same benefits of a corporation.