| STEP 4: Organizational Structure | | | | doesn't get much tax incentives. |
| This is the step where I need to select an organization | | | | Corporation |
| structurethat best fits my business model. I personally | | | | There are a few types of corporations available |
| find there is no "best"structure for all businesses. | | | | depending on thelocation or country the owners |
| However, I normally prefer to select onethat provides | | | | conduct business. However, mostcorporations (in many |
| me with high autonomy and low tax liability. Again, | | | | countries) share similar characteristics. |
| thiswill also depend on the national, federal or local tax | | | | The key advantage of incorporating a business is that |
| structure foreach business entity in the country or | | | | it shieldsequity holders (owners) of the company from |
| state I conduct my business. | | | | personal liability. Inother words, if business hits hard |
| Before setting up my company, I would do insight | | | | times, creditors cannot go after theowners' personal |
| research on all theoptions available for my particular | | | | assets to make up for any company debts. Yet, |
| business model, particularly theadvantages and | | | | mostcreditors nowadays would require the owners of |
| disadvantages of each formation, paying | | | | the corporation toguarantee the shortfalls if the |
| specialattention to the tax implication and government | | | | company goes under. Besides that, acorporation |
| formalities as well asred tape in the location or country | | | | offers significant tax savings (usually not extended |
| where I operate. I never assume allcountries are similar. | | | | tosole proprietorship or partnership), greater business |
| Let's take a look at four common forms of business | | | | flexibility,company name protection and better |
| ownership: | | | | opportunity to raise capital viaventure capitalist or |
| 1. Sole proprietor | | | | financial institution. |
| 2. Partnership | | | | Bear in mind that corporations are not cheap to set up. |
| 3. Corporation | | | | It requiressome initial set up fees and certain amount |
| 4. Limited Liability Company | | | | of regular maintenance.With a corporation, you have to |
| Before selecting the form of business, I always find it | | | | keep a proper set of financial records,audited by a |
| best to workclosely with a lawyer or a financial planner | | | | certified accountant. Depending on where the business |
| to ensure I have the rightinformation, compliance and | | | | isconducted, some government or local authority would |
| resources that allow me to make the rightchoice. | | | | require a minimumset of compliance and would also |
| Sole Proprietor | | | | require regular fees to be paid. |
| This is a very popular form of business in many | | | | There is one option that a corporation possesses - |
| countries (i.e.America, Canada, UK, India, Australia, Hong | | | | that allow ownersto sell their shares of stock to the |
| Kong, Malaysia, etc.)because so little is needed to set | | | | public (known as public listedcorporation). Then this will |
| up a sole proprietorship. Apart fromlocal business | | | | involve higher startup capital (usuallyruns into the |
| licenses, there are minimal government fees | | | | millions), more legal and meticulous |
| andpaperwork. It is instant, cost effective and minimal | | | | accountingcompliances to adhere to. |
| (or even zero)compliant requirements by local | | | | Limited Liability Company |
| authorities. | | | | As for many new entrepreneurs, choosing a business |
| On the other hand, there is also considerable risk to | | | | structure comesdown to liability protection, low startup |
| consider. Theowner's personal assets are vulnerable | | | | costing, tax savings andconvenience. This form of |
| to creditors and otherliabilities. Sole proprietorship | | | | business requires fewer formalities and lesson-going |
| doesn't get the advantage of certaintax breaks that | | | | paperwork than corporations while offering the same |
| are reserved for Corporation or Limited | | | | personalliability protection and tax flexibility. Just as with |
| LiabilityCompany. | | | | a corporation,the company name is protected, and the |
| In short, this form of business is very ideal for home | | | | other members of the company areshielded from |
| based business that has no massive inventory or a | | | | creditors and other company liabilities such as |
| high number of staffs. | | | | lawsuits.A limited liability company only requires the |
| Partnership | | | | owners to keep minimalcompany records, and there is |
| Similar to sole proprietorship, this form is very easy to | | | | no limit to the number of equity owners. |
| set up andmaintain, requiring minimal government fee | | | | Nonetheless, this form of business is dissolved when a |
| and paperwork. The initialsetup cost and maintenance | | | | member diesor undergoes bankruptcy. In comparison |
| fees to run a partnership are very low.Moreover, no | | | | to sole proprietorship orpartnership, it has more |
| capital is required to form a partnership. Each partner | | | | paperwork and complexity to set up and to |
| isnot required to raise any capital to start this form of | | | | bemaintained. |
| business. | | | | *Note: This content contains no unproven teory or |
| On the downside, each partner is required to account | | | | thesis! If you need any small business startup guide, |
| fullresponsibility for all the company's debts. If one of | | | | feel free to visit my Website |
| the partnersdefaults on a company loan, creditors can | | | | Disclaimer - This article may be freely reprintedin its |
| actually go after yourpersonal assets and belongings. | | | | entirety in any e-zine, newsletter, blog or website. |
| Besides that, capital raising is alsovery limited in a | | | | Theauthor's name, bio and website links must remain |
| partnership. Just like sole proprietorship,partnership | | | | intact and be includedwith every reproduction. |