What is the best business set up for you?
It’s been years since you started working and you realize the entire “work cycle” is starting to wear you down. You realize that maybe it’s time to start a hobby. During the pandemic, you managed to try out different things, whether it be cooking, woodworking, painting, or other things. You realize that maybe you could start a business with the skills you managed to learn during the pandemic.
An exciting thought, isn’t it? There are limitless possibilities of opportunities and financial growth in engaging into business. But then, as you dream of the infinite possibilities, you begin to consider also the countless risks and liabilities.
However, all is not lost. Even with the possibility of risk, there are still ways where you can prepare in order to lessen those risks. In setting up a business, one must prepare and make sure that all of the affairs are in order.
One of the factors to be considered in a business is how you will set up your business. We are here to discuss the kinds of options available for you.
1. Sole Proprietorship (SP)
In a Sole Proprietorship, you are transacting under your own name. This is the usual initial set up for most small businesses in the country. It is the easiest and simplest way to conduct business. There is no problem in transacting as a Sole Proprietorship with the general public, so long as you have complied with registrations, compliance, permitting requirements and you conduct business in a sound manner.
SP has its own advantages. It includes simpler tax application, registration and permitting. Likewise, transacting business is so much faster, easier and has less paper works because as the owner, acting under your own name, you have the full capacity and authority to act for and on behalf of your business. You exercise full control and ownership over your business. But, always keep in mind that as an entrepreneur transacting as an SP, all liabilities which may arise from your business will always be personal, which means all liabilities of the business will also become your personal liabilities.
2. Partnership
A partnership is an option for a business having several individuals with the same business interests and goals. Here, two or more persons decide to form a partnership for purposes of conducting business for the purpose of obtaining and sharing profits, setting forth the agreed profit sharing, capital sharing and other terms and condition in the Partnership Agreement. Partnerships are still subject to permits, registration, compliance and other formalities as may be required to by regulations. One of the advantages of partnership is the ability to pool capital, skills, and other resources by the partners. Naturally, the partnership is owned by all the partners unlike in an SP where you exercise full control and ownership over your Business.
A partnership, is similar with a Sole Proprietor in a sense that the liabilities arising out of business operations are also personal liabilities of the partners, with the exception to a limited partner. However, unlike a Sole Proprietorship, a partnership has a separate distinct personality apart from the partners similar with corporations. The partnership management can be designated to a partner or any of the partners or can be done by all partners at the same time depending upon the partnership agreement. The partnership as a business may sue or be sued under the partnership’s name. While, the partnership is considered distinct and separate from the partners, liabilities arising out of the business can still make the partner personally liable. Generally, partnerships are taxed in the same manner with corporations as discussed below except for general professional partnerships (GPPs).
3. Corporation
A corporation on the other hand is an artificial being created by virtue of the law. It has a separate and distinct personality apart from the shareholders, directors, officers and employees. A corporation acts through its Board of Directors or Trustees. Thus, a corporation requires documentations for corporate acts such as Board Resolutions, Secretary Certificates and others. In order to create the corporation, the corporators usually formulate their Articles of Incorporation which contains the details of the formation of the corporation and have it registered. Corporations, similar with other business types, also requires registrations, compliance, permitting requirements to conduct business. A corporation can be a stock and non-stock, closed or family, publicly listed or not.
In a corporate set up, income is subject to both corporate tax for the corporation and individual income taxes of the individual shareholders when profits have been declared. While, a corporate set up may seem disadvantageous and complex, this type of business can be all encompassing and ideal for big establishments. Generally, a corporate liability is limited covers only corporate assets. This is because of the distinct personality of the corporation apart from the Directors, Trustees, Shareholders, Members, Officers and its employees. However, there are certain exceptions wherein the Directors, Trustees, Shareholders, Members, and Officers may be personally liable, such as in criminal acts wherein the law specifically make them personally liable.
4. Joint Ventures (JV)
This is an organization formed for some temporary purpose, it is a business set up wherein an entity is created by the parties for a specific business purpose. A JV can have several parties who can contribute pool of capital to the business and agree on the terms of profit sharing.
IMPORTANCE OF CAREFULLY CHOOSING THE BEST SET UP
It is very important to consider which type of business you will set up to foresee the risks and legal complications in order to mitigate the risks and complications. Each and every business set up has their own advantages and disadvantages, but each has its own edge in connection to a certain type of business. Planning ahead is one the keys to a successful business.