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There are four basic types of legal structures you can choose from for your work at home business. I will briefly go over each one, and describe what is involved for each one so you are better armed for this task. The best structure you use for your business will depend on the number of people that own the business, how they plan to operate it and what their goals are for the business.
A sole proprietorship is a business that is managed and run by one individual. The biggest advantage of a business like this is it is simple and easy to run. The biggest disadvantage is that the financial burdens are the sole responsibility of the work at home owner. Although it is wise to keep separate records for the business, it still not considered to be separate from your personal finances. If a person decides to stay with this form of structure, they need to make sure they have enough insurance to protect them from bankruptcy in the event of misfortune.
A business in the form of a partnership is very flexible, depending upon who you chose as a partner. They do not have to share a business equally, they may split it however they choose, and they may delegate duties in whatever manner works for them. The trouble comes in when there is a disagreement with the partners. If you choose to stick with a partnership, it is best to draw up an agreement that will outline how the disagreements will be handled, and how the business will be run if a person decides to back out of the business. It is best to anticipate all the issues that may arise during a dispute or a break up, and put it in writing how it will all be handled before going into a work at home business.
A corporation is a business that is owned by a shareholder or shareholders. Running a work at home business this way makes it easy to keep the business running for decades. However corporations have to hire certain types of employees to perform certain tasks, they are required to keep separate records, and hold yearly meetings. Corporations will also pay higher taxes. They are taxed twice, first on the corporate return and second on the owners.
The last type of structure you may choose from is Limited Liability Company (LLC). This involves the simplicity of a sole proprietorship and the ease of a partnership combined with the liability protection you would receive from a corporation. But with a LLC a business, you may only stay in business for a limited time. But with careful writing of documents, you may be able to continue your business as a new LLC.
The biggest advantage of a corporation is personal assets are not at risk if the company gets sued or goes bankrupt. A corporation is a separate entity than that of an individual. Many people choose to incorporate their business solely for this purpose. This will also protect you from employee lawsuits. Also incorporating your business will result in a reduction of self employment taxes. With a corporation, only salaries are subject to social security and Medicare taxes, which can save quite a lot of money for profit. Since corporations also offer medical benefits for employees, owners, and officers, they are eligible for another tax deduction. In a sole proprietorship, the owner is responsible for all debts incurred for the business, but having a corporation this allows a tax deduction for childcare expenses, life insurance, disability insurance, and travel expenses.
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