To Incorporate or Not Incorporate: That Is the Question
As we conclude Women’s History Month, let’s spotlight the female entrepreneurs in our community, especially those embarking on their business journeys. One crucial decision is selecting the right business structure. Here’s a look at three popular options: Sole Proprietorship, General Partnership and Limited Liability Company.
Sole Proprietorship
A sole proprietorship is the simplest way to start a business. As the name suggests, you operate the business on your own and are self-employed. This structure typically requires obtaining a business license, a permit, and possibly other regulatory requirements depending on your state or city and the type of business.
Even as a sole owner, you might want to use a different name, like “Cindy’s Calorie-Free Cookies.” In this case, you can create a “Doing Business As” (DBA) name, allowing Cindy to sell cookies at the local farmer’s market under her business name.
Pros:
- Full control over business decisions
- All profits go directly to you
Cons:
- Full responsibility for any business debts
- Personal assets at risk if the business fails
Partnerships
If you prefer not to go it alone, consider a general partnership. In this structure, both partners share full liability for profits and losses and have equal control over the business. It’s essential to partner with someone you trust and to establish a partnership agreement with an attorney. This agreement outlines how to divide profits/losses, sell the partnership, and handle situations like a partner’s death or departure.
A limited partnership is another option, where a “limited partner” invests in the company but doesn’t participate in daily operations or decision-making. They receive a percentage of the profits.
Pros:
- Shared workload and costs
- Collaborative decision-making
Cons:
- Joint decision-making required
- Shared profits
Limited Liability Company (LLC)
An LLC limits your liability, meaning if the business is sued, your personal assets are protected. For example, if someone gets sick from eating a cookie at “Cindy’s Calorie-Free Cookies,” they can only claim the business assets, not Cindy’s personal savings.
LLCs are popular among small businesses and can be structured as single-member or multi-member entities.
Pros:
- Personal asset protection
- Flexibility and ease of management
Cons:
- Not all businesses qualify for LLC status
- State-specific regulations
If you’ve recently started your own business or are in the process, feel free to reach out with any legal questions regarding the processes involved.
Contact us at contact@jlonglaw.com or 312-344-3644 if you have additional questions regarding business structures.
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