You, Inc. - Choosing a Legal Structure for Your Business

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Much of how you handle your business finances and taxes will depend on the legal structure you choose for your business. There are several business structures that you could choose. If you are working alone as the only person in the business, your choices would be to set your company up as a solo proprietorship, limited liability company or corporation. If there is another person going into business with you then you can either be a partnership, limited liability company or corporation.

The vast majority of people who work from home at a business will choose to set themselves up as a sole proprietorship. It is easy, you still file your taxes under your own social security number (in most cases) and it doesn't cost extra money.

If you choose to incorporate your company or set up as a limited liability company (LLC) instead, you will need to pay a fee to do it. The main reason that you might choose to set your business up as a corporation or LLC is that then all of the business debts and liabilities become the responsibility of the company and are no longer your or your partners' personal responsibility.

In a sole proprietorship or partnership the owner or owners of the business are personally responsible for any business debt. That means if something happens to your business and you have business debt or liabilities of any kind, the creditors can come directly after you and take your house, savings, or other personal property to pay for the debt.

If your company is set up as a corporation or LLC, the business becomes a separate entity from you. This means that the corporation is responsible for the debt of the business. You will still be liable for any money you have put into the business, but if there are problems with debt the creditors can only go after the company and not after your personal property.

There can also be tax advantages to incorporating that can help save you from "double taxation". If you are considering incorporating you should do additional research and speak with an accountant to see if or how it would benefit your business.