Help! What Legal Structure is Best For My Home Business?

When you start a home business, you open yourself to legal issues you probably have not dealt with before in your life. It pays to consider what kind of legal structure your home business will have when you get started.

The most basic form is the Sole Proprietorship. Just as it sounds, that means you, and no one else, owns the business. In most places, this is the easiest business to form. It also leaves you open to the most personal liability, as it offers no protection for your personal assets in case of a lawsuit or business debt.

Next comes the Partnership. If you do not form any sort of corporation, but have more than one owner of the business, this is most likely the legal form of your home business. In this case, although it is not required, you are best off putting in writing the duties and shares of each partner. Like the Sole Proprietorship, this form offers the partners no legal protection against lawsuits or business debt.

If business warrants, you may consider forming a Corporation. This is probably not necessary for most home businesses, but as your business grows may be something worth considering. There are a two forms of Corporations. Corporations are generally formed in part to legally protect the assets of the owners, as well as to issue shares, have stockholders, even if they are only the owners, to make it easier to do business with other businesses, to save on taxes, and so forth.

Some worry about corporate income being taxed first on the corporation and then on the shareholder. You will not likely have to deal with this, as only dividends are so taxed; salaries are not. You are not likely to issue a dividend as a small corporation.

For more information on the legal complexities of forming a corporation, visit Nolo.com.

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Help! What Legal Structure is Best For My Home Business?

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