Back in the last century, Mickey Rooney and Judy Garland were a Hollywood power couple. They appeared in a whole string of films, many of them musicals anchored by the idea that kids could put on a boffo show in a relative’s barn.
Getting an enterprise off the ground in North Carolina might have been that easy once. It isn’t today. Launching a business takes more than just a great idea and enthusiasm. It requires well-structured plans grounded in the law.
One of the most critical decisions to make at the outset is the type of business structure to use. Will it be a sole proprietorship? Will you have partners? Maybe it should be a corporation or a limited liability company. The choices are many and each has pros and cons.
The sole proprietorship is one in which there is only one owner and that person is solely responsible for how the business is run. It’s easy to set up which is a plus. But it may require licensing, permits and registration with the local government. A possible con to this model is that you are solely liable for what happens. If someone sues, you could lose more than your business.
There are a couple of different forms of partnership –general and limited. The first is easier to establish than the second. Two heads are better than one, goes the saying, and that’s the key advantage of a partnership. There’s a combining of talents and possibly finances. In a general partnership, all partners are equally responsible for all the liabilities of the business. Limited partners’ liabilities are restricted to the level of their personal investments.
The corporation pool is bigger still. There is a variety to choose from. The type you select depends on the nature of your business. The key pro is that it separates individual investors from the business. The corporation is a legal entity unto itself and investors are only liable based on the amount of stock they own. The downside to corporations can be that they are more costly to set up and more strictly regulated.
The LLC is something of a hybrid. It is more complicated than other forms. The advantages include limited liability for the owners and tax benefits for the company.
Regardless of form, to be sure all obligations are understood an entrepreneur should always work with an experienced attorney.
Source: Small Business Center Network, “Step Two: Operating A business,” accessed July 15, 2015