Much of being a good boss in today’s business world comes down to management strategies. Figuring out how to be a good manager involves determining how to treat employees and manage clients, build an office culture, motivate workers, and more. It’s a complex process, and one that arguably never ends. That said, being a good boss isn’t entirely about on-the-job management. It also means organizing and maintaining the broader business in the best way possible, and that begins with choosing the right structure for it.
This is something a lot of business leaders today hardly think about in the early going. With so many companies starting online, the process is basically less formal than it used to be. As a result, there are a lot of so-called businesses that are perfectly functional and even profitable, but which are more or less personal ventures in terms of structure. A business aiming to last and grow over time though needs a more formal foundation, which is why we’re taking a look at some of the most popular options.
Far and away the simplest form of business — and the one closest to an informal personal venture — is a sole proprietorship. This is an arrangement whereby a single owner takes full responsibility of the business, such that he or she can run it and sell it at any time. The owner is also responsible for any debt or legal liability that may arise from the business, and will cover business income as part of his or her income tax. Some of the best states to start a sole proprietorship include Wyoming, South Dakota, Alaska, and Florida. As far as income tax is concerned, you can easily connect with a CPA or tax expert online without ever needing to leave your home in Miami, Pierre, Anchorage, or anywhere else in the United States. The advantages of a sole proprietorship are generally thought to be full control, a lack of corporate tax, and ease of setup. However, there are disadvantages also — namely that the owner is fully liable for business-related losses or legal issues. Additionally, a sole proprietorship can sometimes have a harder time raising capital from investors.
Limited Liability Company
A limited liability company is one in which the owner is not personally responsible for losses, debts, or legal issues related to the company. It can be run essentially like a sole proprietorship, but for this key difference that can protect owners in the event of significant debt or a lawsuit. Ultimately though, an LLC offers many benefits even beyond this separation of responsibility. For one thing, it’s easy to set up (though not quite as straightforward as a sole proprietorship). For another, it allows owners to pay taxes on business profits through personal income tax — avoiding the “double taxation” issue some owners of other types of businesses are subjected to.
A corporation is another type of business that is essentially set up as its own entity, recognized by the state it’s registered in and separate from its owner. This can be handy in that it provides another form of liability protection, and it makes it easier to transfer ownership (which in a corporation comes down to stock). Some corporations will also have an easier time raising capital from investors. Among the pros and cons of corporations however, there are also some disadvantages that cause some owners to shy away. These are primarily that the application for status takes a while, the structure of the business can get complicated, and owners are subjected to “double taxation” — meaning that both the business and its shareholders are charged taxes on profits.
Determining which of these is best for your business depends on what exactly you want in a company structure. All three are common choices, and each one offers benefits. There is no definitive “best,” though we would note again that a sole proprietorship is simplest, while an LLC offers perhaps the best blend of positives.