Is A Sole Proprietorship the Best Structure for Your Home-Based Business?

home-based business

Is A Sole Proprietorship the Best Structure for Your Home-Based Business?

Have a great idea for a home-based business? Today’s technology has made it easier than ever to successfully launch from the comfort of your own home without missing out on any of the brick-and-mortar benefits. 

Some of the most exciting times of your business’s life are in the beginning stages. You get your “aha moment” and then you envision the success. You begin brainstorming ideas for your logo and vigorously searching the web to gain all the knowledge in your space—the competition, the expenses, the potential earnings. 

One thing that is commonly overlooked during these beginning stages is how to properly structure your home-based business. This is mostly due to the fact that many of these businesses are one-person shows. In these instances, most simply assume they aren’t large enough to need any sort of structure. 

Sadly, this mindset leaves many home-based business owners exposed and vulnerable. Properly forming your business can act as a shield, protecting you, your company, and your assets. 

Which structure is right for your business?

Sole Proprietorship

A sole proprietorship is the simplest and least expensive of the business formations. This is what many home-based business owners assume is right for them when it comes to structuring their company. 

The disadvantage to this business type is that the liability all lies on the shoulders of you, the owner, or sole proprietor. With different formations—as you’ll see below—your personal assets are protected against lawsuits or debts, but this is not the case with a sole proprietorship. 

Limited Liability Corporation (LLC)

A Limited Liability Corporation, or LLC, is most common amongst small business owners. This formation is a combination of a sole proprietorship and a corporation, taking benefits of each. 

With an LLC, your company is protected like a corporation, meaning that any lawsuits, debts in the business name, etcetera, are not your responsibility, but are the responsibility of your company. With an LLC, the two are separate entities. But your home-based business will still operate much like a sole proprietorship in the area of taxes, saving you from major corporate expenses. 

S Corporation

For businesses that want to form as a corporation, an S Corporation is the route to go if your business is looking to avoid corporate tax. This is the case for smaller corporations whose taxes will be paid based on the owner’s personal tax returns rather than the corporation’s, much like an LLC. 

If you structure your business as a corporation—whether S or C—your company can have shareholders who are protected at the level of an LLC. However, there are certain limitations. For example, S Corporations can have a maximum of 100 shareholders and they all must be U.S. citizens or permanent residents. 

C Corporation

Contrary to an S Corporation, setting up your home-based business as a C Corporation means the company will be taxed at a corporate level. This type of business also allows shareholders to own part of the company, but unlike an S Corporation, there is no cap to how many. Plus, those shareholders can be located outside the United States. 

Need help properly structuring your home-based business?

Don’t jeopardize the future of your organization by skipping over this crucial step. It’s tempting to overlook the structure of your company at the beginning, but it could lead to events that could be catastrophic to the business you’ve worked so hard to build. 

We are experts in the area of business startups. We’ve taken the time to learn everything you need to know. All it takes is a phone call to find out! Call today: 305-901-2782. Or head on over to our contact form

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