Are you thinking about venturing into the world of business? That’s a good choice in today’s world. Back in the days, it was easier to create a small mom-and-pop shop. But today we have huge corporations that overtake the industries, causing the small mom-and-pop shops to be not the go-to place to buy their items in today’s market. And going out of business!

Not to worry, people think that the larger corporations exclude them, preventing them from creating their own side hustle and making it impossible to create a corporation. This is far from the truth. In today’s market, it is all about community and partnership. Larger corporations that dominate the market allow you to partner with them.

The idea behind reinventing the wheel is a true saying. You don’t have to. The name of the game is adaptation and joining a lasting team of people who can become one with you and do not work against you. Some people believe that they should be in competition with the larger corporations, well in fact you don’t have to be. You can become a part of them if you fit in with them.

Don’t make your objective to competing when you can’t compete!

Why compete with someone or something that is dominating the marketplace. You are not really in the animal kingdom, you know. You don’t have to be eaten. You can join the team that is dominating the market rather than fighting against them. The idea is there are ruling kingdoms in our society which stems from thousands of generations. These ruling kingdoms are like the government. Who do you think approves of these corporations? Yeaha, do you see where I am getting with this?

You can’t compete with your parents, who are making all the rules. That’s like you trying to compete to be God when you are just an infant. No, no, no, focus on learning and joining a team of people to help you grow and develop yourself and your business rather than venturing out on your own.

I have always fallen into this bracket of these people trying to force me on an avenue of their own ideology and trying to make me go against the grain. Well, in fact, having a mind of our own is not going against the grain. This means you are an asset to their brand. You can bring ideas and innovation to their company. These are the mistaken factors that people who work for a company miss. You cannot work against them, you are contributing to them. This is the missing puzzle in their head when people try to create villains. Let them be who they are, and you focus on what matters to you.

Let’s address the topic at hand. And that topic is What are the different types of corporate structures?

If you are going to venture out on creating a side hustle you might as well, do it the right way. One way to create a side hustle and to make your business legit is to create a corporation. You can create a corporation in just about any state you are in. But some peopled decide to create corporations in certain states for tax purposes. For example, you can form a Delaware corporation, Nevada corporation for tax purposes. These are the two main states you can incorporate in, but you can incorporate in your own state too. There are 15 types of corporation formation you can have. However, we are going to address 4 structures. The reason why we are only going to talk about these 4 structures is to keep it simple. This way you can focus on the structure you want to create

  • Sole Proprietorship
  • LLC
  • Limited Liability Partnership
  • Partnership

What is a Sole Proprietorship?

A sole proprietorship is you. An entrepreneur who is venturing out into the world of business and doing business under their own name. This is a riskier kind of formation because your assets are not protected.  

The Pros to this are. This kind of formation is easier to set up and the cost is very low. There are no corporate taxes, as you file taxes in your own name. And there is no annual reporting or filing of a financial statement required.

The Cons to this are, Unlimited Liability, means you are liable for anything going wrong in the corporation, that’s why the liability is unlimited. As everything is in your name, and you are at a higher risk when your asset is in your name. 

The next Cons to this, you must pay self-employed taxes.  You must file tax and pay self-employed tax. This is ideal because you can pay these taxes for unemployment, sales taxes and more, which are better for you. As this shows your contribution. The good side to this is if you don’t earn enough money and this is a side hustle, and you make less than 1,000 a year, you can consult with your tax advisor to see if you should be reporting this.

What is an LLC?

Limited Liability Company (LLC), this kind of corporate structure is a combination of a sole proprietorship, corporation, partnership, and limited liability. This is a hybrid structure which combines the structures to provide more protection for the business owners. These kinds of features include limited liabilities, which mean you are limited to some liabilities.

The Pros to the LLC are:

  1. You can register and apply for your tax EIN easily. You can create a separate legal entity.
  2. Personal Liability Protection
  3. Easy to File
  4. Easy to raise capital.

What are the disadvantages of an LLC?

  1. You pay high taxes.
  2. Yearly renewal
  3. You’re responsible for Self-employment taxes

What are the advantages of LLP?

An LLP is a Limited Liability Partnership, which means this type of formation has two or more partners. An LLP is a hybrid of a Partnership and an LLC.  What this means is that the LLP limits the amount of liability each partner is responsible for. Meaning that each partner is responsible for their own negligence.

What are the Cons to the LLP?

  1. Members must file taxes with their personal taxes.
  2. Members must be a managing partner, but each partner must contribute.
  3. Can cost more to run the business than in an LLC.
  4. Must file annual reports in some states.

What is a Partnership?

A Partnership is an arrangement between two or more people in a corporation. Partnership shares profit and liabilities.

There are 4 types of Partnership.

  1. General partnership
  2. Limited partnership
  3. Limited liability partnership
  4. Limited liability partnership

Each of these partnerships has their own agreements. For example, the general partnership is one of the most common types of partnerships.  This makes owners personally responsible for their own debt incurred that relates to the day-to-day operations.  They are responsible to each of their liability they operation.

With a limited partnership, owners invest in the business with their money but are not responsible for the operation of the day-to-day operation.

In a limited liability partnership, most lawyers, accountant firms or special types of license business use this partnership to limit their liability on personal liabilities and business debt on an individual basis.

With any of these structures. The person forming any of these corporate formations would determine which of these structures benefit what they want to accomplish when creating their business. Alternatively, it’s best to consult with someone who can help them structure their corporation in the best way to suit their needs.