During the business formation process, or during a business transaction where you are buying a company from someone else, it pays to think carefully about the business structure that you want to use. The way that you set your company up can have a significant impact on many areas of how the company operates, including your financial obligations.
For one thing, different business structures have different tax obligations. A corporation will pay its own taxes, for instance, and you may need to address payroll taxes. With a sole proprietorship, on the other hand, you may simply pay taxes in your own name.
Business loans and financing
The business structure you use also changes the way that you address any business loans or other financing options that you use. Specifically, it helps to determine who will be responsible for those obligations.
With a sole proprietorship, for example, you are typically required to pay back any loans that you take out, and your personal property could even be at risk. The loans are in your own name, so creditors could try to take your home, your savings or other assets.
But with a limited liability company, or an LLC, you have no personal responsibility for business loans. Creditors can pursue the company’s assets, but you are shielded by a higher level of personal liability protection.
As you can see, your business structure is very important, whether you are starting the business or buying one from a third party. Either way, carefully consider the legal implications and the steps you will need to take.