Structuring a building or a business depends on the risk you are willing to shoulder. A building can be like PETRONAS TOWER or a solo concrete structure just standing high. There are four legal structures best chosen for the business incorporation. Enlisted below are the four structures with their pros and cons.
This is the most common and simple structure, which is popular for solo business owners. It gives you the liberty of filing your expenses and income from your personal income tax returns. This way, any business loss that may occur offset by the income you have earned from other sources if you will have the need.
Similarly, you are high on the stakes of getting your property located in case of bankruptcy or being sued. This structure is best for testing your business concepts or if you are bearing no personal assets. The one like consultancy firms and other service providers where no or only a few employees are part of the organization with no such investments in assets.
If you are confident in your idea but with no investment then make sure you cooperate with someone. This structure is bifurcated in general and limited partnership. A general partnership offers any time farewell to a creditor after any or all the partners.
Whereas a limited partnership indulges a general partner with unlimited personal liability and limited partners complete, liability is generally limited to the amount they have invested. You need to report your profit and losses in an informational tax return and fill it with your personal tax return.
It is a low-cost venture and, you can avail the advantages on taxes with sharing of profits and losses on the tax return. The only demerit it offers is for the general partners who are always at the risk even if other partners sink the company. Best in real estate industry.
The most prominent and mushrooming structure of today's era. All the big corporations and big investors out there in the business world are the examples of this structure. It is an independent legal entity that is separated from its owners and you do not need to necessarily risk your personal assets beyond the limit of your investment in the corporation.
These corporations have S class and a C class that of Mercedes, the S-class is the most common with the limitation of 100 shareholders and C class is for high-profile ventures. A board of directors is held accountable for these corporations.
As with its size, it includes a big investment and with that, investment comes high risk. It accounts to more tax returns and other legal formalities. This structure suits the manufacturers and restaurant chains.
These corporations are either part of a large group of investors of ownership of Family Business or Private Limited Company. Therefore, those interested in the corporate life and entrepreneurial career. Then they must not shy away from the Private Limited Company Registration and begin their venture on a positive note.
Limited Liability Company:
This structure was evolved for the sole principle of avoiding the double taxation. It shares its profits with Proprietorship of profits and losses being passed through the owners and included in personal tax returns. It is better than a corporation in liability protection along with no limit on shareholders.
The only demerit it carries is paying on self-employment tax on your share of the draw depending on how the entity decides its taxation. This structure is encouraged and welcomed by the companies to welcome foreign investments. Special Economic Zones are the best place to land in these projects.
If investing in a foreign land then you need to collate a local citizen and make him the representative of all the drafting of your legal documents. S / he will be the partner of 51% shares in your company and the sole share of profits. Best for the startups who are willing to try their ideas with less risk and expense.
Every business has its risk factors involved, the careful planning, operational excellence and execution with detailed market research contributions to the success of the business. It is important for a business owner, sound decision that helps in covering the risks and minimizing their impact on the company.
I hope this article would have covered all the spheres of business structures and will help you in choosing your best structure. For more assistance contact us and get professional help from the experts.