Selecting a home business structure is very important for a home-based
business owner. Home-based businesses have several options when it
comes to structure. Your business can be a sole proprietorship, a
Limited Liability Company (LLC) or a corporation. If you plan on going
into business with someone else, consider an LLC, Limited Liability
Partnership (LLP), or traditional partnership, as it will help you
preserve limited liability. Before you consider which type of business
structure to opt for, a home business owner should consider:
Business start up costs
Complexity of and time involved in business maintenance
Potential personal liability
Business image
Tax issues
Comparing Home Business Structures
To see which business model best suits a home business owner's needs,
it is important to know the advantages and disadvantages of each business
structure.
Operating a sole proprietorship will cost the least amount to start
up and maintain. It is also the easiest business structure when it
comes to filing tax returns, requiring only a Schedule C to go with
a 1040 Form. A corporation costs a bit more to start and maintain,
and an LLC or partnership can be equally costly. Forming an LLC or
a corporation also requires legal paperwork and involves a lot of
complex jargon. More complex business structures, such as partnerships
and corporations, mean outside involvement in your home business.
In a sole proprietorship, you are personally responsible for everything
including debts incurred, damages and lawsuits. Your best protection
is to have your home business adequately insured. Forming a corporation
or LLC has the major advantage of protection of your personal assets,
such as your home or your savings, from any business losses.
Business image is an important factor in deciding whether your home
business should be a sole proprietorship or a corporation. This is
because people associate the size and permanence of a business with
the terms such as "Inc" or "Corp" and it gives
people a sense of permanence as well as the idea that your home business
is serious not a hobby.
If you are thinking of teaming up with someone, you need to seriously
weigh the advantages and disadvantages of forming a partnership, a
limited liability company or a corporation. While partnerships are
often inexpensive and simple to start, the advantage of an LLC or
a corporation is that you limit your personal losses. This also means
that more people are involved in the running and operations of your
business.
Before deciding on any of these options for your home business
structure, it is best to consult a lawyer or a tax professional well
versed in home-based business and legal issues. After applying these
considerations you can decide which home business structure will give
you the most in terms of money and in overall personal satisfaction.
