Chapter 4: Business Structure
How do you plan to have your business structured? Are you looking at the simplicity of being a sole trader, where the business is you? Or a partnership where you have joint responsibility and share skills etc. Or even a corporation, so you can limit liability and maximize tax efficiencies.
In this chapter we will look at the structures available to you and some of the advantages or disadvantages.
Sole Trader
As a sole trader you take all the risk. While you have all the rights as a business owner, should something go wrong or an incident where i.e. if a customer is injured or property damaged you are 100% liable.
"If a customer is injured or property damaged you are 100% liable"
Often service type industries such as plumbers, electricians, auto repairers etc. or even the local store are sole operators.
Partnership
A partnership can take many forms 50/50 equal sharing or even 80/20, whatever suits the partners. Some partners are silent, meaning they only give limited support or backing, this could be financial or a set skill required only in specific situations or times.
Partnerships can work well as each party has a set skill or even financial backing that can be brought to the table and shared in making the business a success.
Whatever the setup caution must be taken, always get to know your partner have agreements in place and always have these endorsed by a legal identity.
Corporation
There are many different options available for incorporating a company an each has different levels on liability limitation.
We won't go into the details of each, as this is something I strongly recommend you get legal advice on.
A corporation is a great way to limit your liability as a corporation is actual a third identity. There are many advantages other than the liability aspect, and it also gives your business a face of professionalism. You can also leverage on the tax advantages and spread your earnings and losses to minimize the taxable income and maximize tax rebates.
Whatever structure you choose legal advice is always an important step to do, business laws vary from city to city, state to state and country to country. Get legal advice for your location, and keep up to date as business laws are always changing.