As a solopreneur just getting started with your business, one of your first choices is how to structure that business. Today I’ll describe 3 of the top business structures for solopreneurs so you can choose what’s best for you.
This is by far the quickest, cheapest, and easiest business structure to create.
This is for a business that’s owned by one person. The owner’s responsible for all debts, losses and liabilities. The business name can be the name of the person, or it can be a trade name (aka fictitious name, aka Doing Business As).
In this case you and the business are considered one and the same. This can make things a lot simpler, but it also carries some risk from a financial perspective.
This is the middle ground between the Sole Proprietorship and a Corporation.
With an LLC:
- Your personal liability for the debt/and or actions of the business is limited
- You have more paperwork to fill out than a Sole Proprietorship, but you have less paperwork than a Corporation
- Taxes are a bit more complicated – the LLC will file taxes as a corporation, partnership, or sole proprietorship, depending on your LLC. Be sure to research this thoroughly before choosing this business structure, and talk to an accountant as needed.
An LLC will cost a bit more to set up that a Sole Proprietorship will, but it can be worth it for the protection it provides for your liability. One warning on that though – there are rules around that protection. Depending on how you operate your business, that protection can be broken – it’s called “piercing the corporate veil”. So do your research, and follow the rules.
We’re all familiar with corporations – these are the large companies that we interact with every day. But you can start one, even if it’s small.
A corporation is a legal entity that is separate from its owners. Basically the idea here is to fully separate the liability of the business from the owners. A corporation can borrow money, sign contracts, and pay taxes on its own (look ma, we’re all grown up!)
With all this power, comes responsibility. Corporations have a crapload of paperwork to fill out and regulations to follow.
If you choose this structure, I recommend talking with a lawyer and reading books and/or taking classes about corporations. Learn as much as you can, to make sure that you’re following the law.
Covering My Butt
Please keep in mind that I’m not a lawyer, and I’m not an accountant. Since starting a business can have legal and tax consequences, it’s best to talk with your lawyer and your accountant when starting one.
And I apologize to my international readers, but what I’m describing here is how this works in the United States. Please search for the requirements for your country, and accept my apology for my narrow focus.
Your Action Items
- Think about which of these business structures might work for you
- Research the one you like best
- Talk with your accountant and/or lawyer about your new business
- Fill out the paperwork for your business structure and submit it to the proper authority
- Done! Good job! You get a cookie. 😊