diminuendo kerrill: LEGAL BUSINESS STRUCTURE

Saturday, March 3, 2012

LEGAL BUSINESS STRUCTURE | Business 101

March 1, 2012 ? 5:07 pm

It is likely that when you first start your career, you will be doing some freelance work. You may find success and want to establish your own company. At some point, whether solo or as a company owner, you?ll need to understand legal business structure.

If you are a freelancer then legally you are a ?Sole Proprietor? or ?Independent Contractor.? If you and a friend decide to go into business together you may form a partnership. Often this is just for one project, so you may decide to stay sole proprietors who are both working for the same client. If you want the partnership to be longer lasting, you may decide on a ?General Partnership.? There are a couple of other types of partnerships, but from my experience, creatives usually don?t formalize that way. Once the firm is more successful, creative companies will often choose to become a Limited Liability Company ( LLC). Some take the step of becoming a Corporation (an ?Inc.?).

The reasons for morphing from one type of business entity to another mainly has to do with two big factors:
(a) Liability
Does your practice result in things that can hurt/kill people? If yes, you personally may want to be protected from being sued and have your company take the hit. LLCs and Corporations shield you personally.
(b) Taxes
At certain income levels, and considering the types of assets you have, it may make sense to become an LLC or Corporation. Why? Because these entities are taxed differently than individuals. It may be to your advantage financially.

How/when you evolve your business structure is a conversation to have with a trained tax professional or accountant, or even with your business attorney. Please see the charts attached for a quick comparison overview of business structures so you can begin thinking about this issue.

Please click the following images to view them at full scale: