To start your own business isn’t a cup of tea, sometimes people think that if ideas are strong then anything can be achieved. Yes, indeed it can be but business comes with ideas, innovation, brain storming, financial analysis, along with thorough research with all your dynamism and attentive decision making skills.
Typically when you start a business you don’t think much about the type of business structure do you need! If your business has only your investment, so by default you become a sole proprietor of your business, although a sole proprietorship isn’t actually a formal business entity, therefore it comes with some loopholes or you can say drawback. When you are the sole proprietor of your business then you and your business is actually one and there is no legal separation between you and your business. And if in case due to some mishaps, if your sole proprietorship is sued then the creditors can sue you and court can seize your personal assets. So, it’s always better to go for a business structure which can make a separation between you and your business to protect your personal assets. Therefore you should think and consider the two business structures that are the S corporation and the limited liability company (LLC).
When you’re trying to get your business off the ground, one of the first steps to take is to figure out what kind of entity you’re going to be. If you are starting a company with one or more partners, then a partnership is one of the simplest and effective ways to begin. However, there are two kinds of partnerships – limited and general. Today we’re going to outline both, as well as show you how to apply for EIN (employer ID number).
What is a General Partnership?
For the most part, this is probably what you will want to have. A general partnership makes it so that each partner has an equal share in the day-to-day responsibilities. All of the liabilities of the company (financial or otherwise) are shared among the partners equally.
In a general partnership, you can outline the precise details in a partnership agreement, so if one member does not want to be responsible for specific tasks, that can be agreed upon before you start the business.
What is a Limited Partnership?
In some cases, you may have what’s called a “silent partner.” This is someone who provides funding and receives earnings from the business, but he or she is not involved in the daily operations of the company. In a limited partnership, the roles of each partner are clearly defined, with one or more of them having limited responsibilities and liabilities to the company.
Another option is to form an LLC. This entity type allows for multiple partners to be included in the business (in a limited or general capacity), but it also enables you to limit everyone’s liability by becoming a separate entity.
Getting an EIN
If you want to keep your business separate from yourself, then you have to register it as a separate, unique tax-paying entity. To do this, you will have to apply for an EIN. This is a good idea because it ensures that your personal finances are not affected by the company’s finances.
Overall, the most critical element of any partnership is making sure that everyone involved knows what they are responsible for, as well as their liabilities.