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 incorporating a business. Enlisted below are the four structures with their advantages and disadvantages.
Sole trader:
This is the most common and simplest structure, which is popular for single 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 might occur offset by the income you have earned from other sources whenever it is needed.
Similarly, you are legally responsible for all business your debts and most likely to be sued or have your property seized in the event of bankruptcy. This structure is best for testing your business concepts or if you are bearing no personal assets. Type of firms like consultancy and other service providers were no-one or only a few employees are part of the organisation without investments in assets.
Partnership:
If you are confident in your idea but without capital investment then make sure you collaborate 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. You can avail the advantages on taxes with sharing of profits and losses on the tax return. The only demerit is that the general partners who are always at the risk even if other partners sink the company. Best in real estate industry.
Corporation:
The most prominent and forming 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 merits 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 Designated Commercial Zones are the best place to land in these projects.
If investing in a foreign land then you need to collaborate 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 contributes to the success of the business. It is important for a business owner, sound decision that helps in covering the risks and minimising 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.