|Printed from http://www.dynamicgraphics.com/Microsoft/Article/28552|
Choosing A Legal Format for Your Business - Part 1
Choosing the most appropriate format for your business means carefully weighing a number of important trade-offs. Here's a simple comparison of formats typically used by creative firms in the United States.
by Shel Perkins
November 2, 2005
Every business has a legal format that defines its ownership structure and how its profits will be taxed. Here's a brief comparison of the formats typically used by creative firms in the United States. In order to choose the most appropriate format for your business, you'll have to carefully weigh a number of important trade-offs: the ease or difficulty of set-up, the level of business taxation and the extent of your personal liability for business debts and obligations. Ask your attorney and your accountant for guidance in selecting the right format.
For taxation purposes, the company is not considered separate from its general partners. This means that the business itself does not pay taxes on profits. Instead, the partnership "passes through" the profits or losses to each partner, based on percentage of ownership. Each partner then reports his or her share on an individual tax return. This single taxation is one of the benefits of selecting a general partnership as your legal format.
General partnerships have a downside, however. Because a general partnership is inseparable from its owners from a legal standpoint, the partners are jointly liable for the entire amount of any business-related contracts, debts or other obligations.
In the next article, we'll discuss other common legal formats including "C" corporations, "S" corporations, and limited liability companies.
Shel Perkins is a designer, educator and consultant to creative firms. His book 'Talent Is Not Enough: Business Secrets For Designers' will be published in 2005 by New Riders. To contact Shel with questions and comments, please e-mail us at firstname.lastname@example.org.