Well, it is like exploring the unexplored when you launch a business. Every venture is a unique one, and there is no fixed recipe for success. You need to determine the best path and learn by making mistakes. As far as the structure of the business is concerned, it is critically important to crystal down to the best choice after brainstorming a lot. Review the business objectives and consider the business plan. The fundamental questions that should pop-up in mind are:
- Are investors shareholders also?
- What is the status of business liabilities?
- Do your investors control the business?
- Are there any taxation issues?
- Are any losses anticipated in the beginning?
All these aspects determine the size of the business structure. You avoid the risk of choosing an incorrect one if the decision is supported by in-depth analysis. There are several choices in the menu card, but the best one should be picked after consulting financial advisors or CA.
Sole Proprietorship versus partnership
Forming a sole proprietorship is good when you don’t want to involve any partner. It is an effective structure when you want to sell the products and services on an individual basis. You need to keep the separate business record and a checking account. The taxes to be paid on the individual basis and report the income on the tax return.
In this structure, the liabilities of your business get mixed with the personal ones. It is difficult to keep the distinction between the business assets and capital assets. It creates a problem when there are legal complications.
In the partnership, the responsibilities and benefits are shared by all parties. A partnership can sell or buy assets as a separate legal entity. However, the income or losses need to be reported separately on the individual tax return of each partner. The proportion of the partnership has to be decided in the beginning.
Whether you choose sole partnership or multi-party partnership, a sleek and smart structure is always recommended.
Yes, it is perfectly okay to be passionate about the business when you launch it, but the emotions need to be supported by sound, methodical thinking process. Then only you can expect stability and performance in the business. Do not get carried away by the heart, use your mind instead. Remember, a little business structure gives the assurance of a big success. Keep it in mind while you pursue the business dreams.