Types of Start-up Businesses

There is a lot of preliminary work to be done once you have decided to open your own business. A multitude of tasks clamor for your attention and it can be easy to find yourself spinning around in circles trying to keep every fire burning. Don't make the mistake of dealing only with urgent things and failing to do some foundational work as well. Getting your business structure set up in a timely manner will serve you well when it comes to dealing with tax and legal matters. The sooner you get this somewhat tedious step out of the way, the better. 

A sole proprietorship is the most basic organizational structure, and a particularly common one among start-up businesses to boot. In the sole proprietorship structure, the founder of the company takes in all the profits and has all the decision-making power. Needless to say, organizing such a company is also an easy task. Unfortunately, this is where the benefits end. Any profits you make are taxed as personal income, your company will pay higher taxes, and you take on all legal responsibilities for your businesses' actions, meaning that personal assets are vulnerable to fines and taxes. Still, going it alone can be a good plan for some start-ups.
 
The partnership is more complex and consists of two or more people pooling skills and assets, sharing responsibilities in running the business. Each partner, however, takes on the same level of legal liability as a sole proprietorship. Furthermore, each partner your start-up brings into the fold will require a written and legal partnership agreement, complete with legal recourse for the partner to leave the business, assigning ownership of a company's assets to that partner, and assigning individual responsibilities to that partner. These agreements should always be fleshed out beforehand, and control of the company should never be divided in a way that allows for important decisions to become ties when brought before the partners in charge.
 
A limited partnership works much as a partnership, though there are a few key differences. The first is that partners, as either investors or advisors, serve under the same rules as a partnership, but not all partners are equally liable in a legal sense, though at least one partner must agree to take the unlimited legal liability attached to a sole proprietorship. The second is that partnership agreements include clauses that provide for a return on any investments made into the start-up, which can be a good way for start-up businesses to get the beginning funds they need. This rate of return is chosen at the time the agreement is made.

Finally, there's the option of incorporating your start up, effectively turning your company into a legal entity separate from owners and employees, at least in terms of legal liabilities. This protects your assets and, even better, can be done on your own. However, there are multiple kinds of incorporation that a company can become, and each one is held to different rules and standards by the government. Some possible drawbacks include increased cost, tighter regulations, company size requirements, and limited financing options in the future, depending on what type of incorporation you choose.

As tedious as it sounds, all the provisions of your company's organization will have to be decided early on, particularly since liability laws are so stringent. Furthermore, you'll want to make legally binding contracts among your organization as detailed as possible, for no matter how close you are to any partners, the chance of a parting of ways is ever present. In the end, realism is the key to finding the right type of organization and should be applied to this important decision.