<h2 class = 'uawtitle'>The Business Arrangement You Should Adapt</h2><br />
<div style='font-style:italic;' class='uawbyline'>by Clyde H. Thornton</div><br /><br />
<div class='uawarticle'>Probably, the most important decision you make when starting your own business is to choose the type of legal structure you'll use for your enterprise. Furthermore, it is also important when we talk about computing your taxes.<br />
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Aside from the fact that this decision has a huge influence on your tax payments, your business structure will also affect the amount of paperwork your business has to do, your ability to earn profit and the personal liability you face.<br />
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You should choose the structure that most closely matches your company's needs and you have to make your choice wisely because each business form comes with different tax consequences.<br />
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Below are the 3 basic business structures:<br />
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Sole Proprietorship<br />
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Considered as the best business structure for those who want to have their own business because it only involves just one individual who owns, at the same time operates the entire business. Furthermore, it is also the simplest business structure.<br />
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This status automatically comes as long as you are the sole owner of your enterprise. You do not have to take any formal action to form a sole proprietorship.<br />
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Advantages of Sole Proprietorship:<br />
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* Less costly and easier to form - with this type of business structure, costs are minimal, with legal costs limited to obtaining the needed permits and license.<br />
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- Exclusive control - you don't need to ask with anyone else when you need to make moves or changes. Thus, you have complete control over your business decisions because you are the only owner.<br />
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- Easy Tax Preparation - because there is no legal separation between you and your business, your tax reporting requirements are easy to fulfil. With sole proprietorship, you can get the lowest tax rate of all the business structures.<br />
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What are its disadvantages?<br />
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1. Unlimited personal liability - because there is no legal separation between the two parties, you can be personally liable for the liabilities and obligations of your enterprise.<br />
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* Hard to raise capital - banks and other lending institution are hesitant to lend to a sole proprietor because they are perceived to have lack of credibility when it comes to repayment of the business fails.<br />
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Partnership<br />
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This structure is a kind of business where there are two or more people who share the ownership, liabilities and management.<br />
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Types of Partnerships<br />
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Below are the 3 general types of partnership:<br />
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1. General Partnerships - partners equally shares the profits, liability and management duties. If there's an unequal distribution, the percentages assigned to every partner must be documented in the partnership agreement.<br />
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* Joint ventures - partners act as general partners for a limited period of time or for a single project. They can be recognised as ongoing partners if their venture continues but they must file as such.<br />
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Corporation<br />
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Corporation<br />
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What are the advantages of corporation?<br />
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Corporations file taxes separately from their owners. Thus, the owners only pay taxes on corporate profits paid to them in the form of dividends and bonuses. Moreover, shareholders' personal assets are protected from the corporation's debts and actions. Any additional profits are awarded a corporate tax rate, which is commonly lower than a personal income tax rate.<br />
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Disadvantages:<br />
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Because it is separate from its owners so it requires complying with more regulations and tax requirements, corporation is an independent entity owned by stakeholders. These are the reasons why this structure is more expensive and complex than most of other business structures.<br />
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A corporation is formed under the laws of the state in which it is registered and you will probably need an assistance of an attorney to guide you when starting a corporation. Furthermore, there are increased paperwork and recordkeeping burdens associated with this business structure.<br />
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<div style='font-style:italic;' class='uawabout'><br />
About the Author:<br />
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<div class='uawlinks'>Want more tips about business structures? Ask for professional advice from <a href="http://www.tax-accounting-perth.com.au/accounting-taxation/business-structure-advice/">Bagetta Accountants</a> or visit <a href="http://www.tax-accounting-perth.com.au/">tax-accounting-perth.com.au</a>.</div><br />
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