Starting a business on your own can be an exciting and rewarding adventure. Structuring your business correctly is going to be important when it comes to maintaining legal compliance, protecting personal assets and setting up a foundation for growth and success.
Although you’re starting your company alone, you have several options for legally structuring your business, including the following:
- Sole Proprietorship: This is the simplest and most common structure for solo entrepreneurs. It requires minimal paperwork and offers complete control. Yet, you will not benefit from any personal liability protection with this option.
- Limited Liability Company (LLC): An LLC offers liability protection without the complexities of a corporation. It separates your personal and business assets, protecting your personal wealth from business liabilities.
- Corporation: While more complex and requiring more regulatory compliance, a corporation provides strong liability protection and potential tax benefits. It’s less common for solo ventures due to the complexity of this legal structure.
No matter what option you choose, separating your personal and business finances is going to be important for both legal and practical reasons. You’ll want to open a business bank account to handle all business transactions. This can help with bookkeeping and provides clear records for tax purposes.
Additionally, you’ll want to consider getting a business credit card to further delineate business expenses. This is going to be especially important if you opt for a sole proprietorship, as your personal and business income is otherwise going to be confusingly co-mingled and your taxes could be nightmarish as a result.
To that end, understanding your tax obligations is going to be important. If you’re going to move forward as a sole proprietor or single-member LLC, you’ll report business income on your personal tax return, unless you opt to have your LLC taxed as a corporation.
Moving forward
Structuring a business when you’re going it alone requires careful planning and consideration. As such, it’s important to remember that even though you’re going to be the sole owner of your new business, you can still benefit from seeking professional support in order to better ensure your company’s success. Seeking personalized legal guidance is a good way to get started.
