Business Formation

When you reach a certain level of growth, the desire to form your own company and take it to greater heights of success is only natural. In addition to furthering your business, company formation also provides you with various tax and legal benefits that you would otherwise miss out on as an individual entrepreneur. However, the task of business formation is not as easy as it is made out to be. Successful business formation is punctuated by timely planning and management.

The first you have to decide on when you commence business formation is the structure of your business. The structure you decide on often in the takes the future of your business. Broadly speaking, most countries allow three kinds of business structures:

Ø Sole Proprietorship

Ø Partnerships

Ø Corporations

To build your business successfully, you have to first decide on which structure to adopt.

As the name suggests, sole proprietorship refers to a situation where one person owns the business. Due to this, a single individual has complete hold over the business and all rights of the business belong to this owner. All decisions regarding legal and tax matters are taken by the individual owner. Some of the advantages of sole proprietorship are:

Ø Easy to set up

Ø Unlimited freedom to take business decisions

Ø Avoiding double tax

Ø Low tax rates

However, sole proprietorship is not without its disadvantages. Since the individual owns the company and reaps any rewards individually, he or she also runs the risk of shouldering financial burdens individually. Therefore, the individual is also personally responsible for any outstanding debts and obligations accrued by the company. This allows creditors the freedom to seize personal assets. This is a major drawback of personal proprietorship.

A partnership is a business in which a number of people come together for the purpose of business formation. Each partner invests certain amount of money in the business. Therefore, all expenses are shared by the partners.

In a corporation, owners and shareholders jointly own the business. This structure is quite attractive to upcoming businesses because any death and losses accrued by the Corporation do not affect the individual business owners and their assets. Further, corporations enjoy many tax benefits. Of course, there are disadvantages to this model too; the most important of which is the unbridled freedom which is given to shareholders while taking important policy decisions.

Deciding on the structure of your business is only the first step of your business formation. Along the way, you will find that need to take a number of important decisions. Therefore, it is always advisable that small to medium businesses insulate themselves against business failure by enlisting the services of business start-up companies. When you work with this mentor, you have the freedom to leave lengthy paperwork, tiresome data collection and risky business judgments to them. This gives you more time and flexibility to focus your attention on your business.