Getting your feet into business as a first timer can be a bit confusing. You have the business drive, but you are not sure how to go about it. If you are choosing a business entity form, it is important to understand the basic facts about each category.
There are four legal options that you can consider. Each one has its pros and cons. Here are the options:
When looking to incorporate a business in New York, a single owner entity could be the best choice. The owner runs the business by him/ herself. There are no legal formalities in this type of business. Depending on the state that one is in, a business license could be the only requisite document needed to start a business. The capital injected is dependent on the proprietor.
• The owner enjoys all the profits.
• The Proprietor determines the direction of the business.
• The individual runs the show. Therefore, there is no consultation required in making quick decisions such as expansions or downsizing.
• Raising capital could be a problem. Most banks prefer loaning to companies. Sole proprietorships are considered high-risk ventures.
• In the case of a devastating loss, the owner shoulders full responsibility.
• Lack of pooled thinking which could lead to poor judgment. Two or more people with a different outlook on an issue could come up with a better verdict.
When two business people come together to do business, a general partnership forms. The agreements and judgments based on trust are guides to the partnership. It is more of a gentleman’s agreement with little or no paperwork to be done.
• Easier to pool resources for capital.
• The losses can be equally shared reducing the damage.
• Shared ideas could improve the business tremendously.
• The profits get shared equally or depending on the initial contribution reducing the final amount received by each member.
• You have to consult before making any decisions affecting the business.
• The debts and taxes carried by you or your partner could come to haunt the business.
Limited Liability Partnerships
It comprises two or more individuals coming together to do business. This type of entity involves legal paperwork and agreements and allows partners to limit their obligations. As long as the partners are proven not guilty of any unethical or illegal malpractice, they get absolved of any wrongdoing.
• The partners are protected from risk in case anything goes wrong.
• There are joint contributions, thus easier to raise capital.
• The benefit of collective counsel.
• Starting it is a complicated process, lots of paperwork that has to be regularly submitted.
• Decision-making consultations could result in loss of crucial time.
When choosing a business entity form, a corporation is considered the safest. Legally, it is recognized as an entity on its own with legal rights independent of the owners. Therefore, the partners get protected from liability. It can own and sell a property, be sued and sue in court. It can also sell stocks in the stock exchange.
• The protection ensures the safety of all of your partners’ properties.
• Pooled resources, knowledge and skills make it more professional.
• Decision making is a tedious process because of the numerous consultations.
• Lots of paperwork to handle.
So now you have a better idea of what your options actually are when choosing the right business entity for you. Here at Ask Uncle Phil’s Tax Advice we provide expert advice on how to incorporate a business in New York. If you are interested in knowing more about how we can help you select the right business entity for your business, call us for a FREE Business Entity Consultation at (855)829-8477