Deciding on the Type of Business Formation
Your first decision before you actually start selling your products or services is to decide what type of business formation is most appropriate for your needs. Your options include a sole proprietorship, a partnership or incorporation.
- Sole Proprietorship – You are the sole owner. Profits and losses are reported on your personal tax return. You are personally liable for the activities of the business.
- Partnership – Two or more people may form a partnership. You can share the responsibilities of running a business and each partner is a proportional owner of the company.
- Corporation – A corporation is a separate legal entity. Liability of the corporation does not pass through to individual shareholders. Paperwork is more complex and you must file a corporate tax return.