Business Formation

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Business Formation

The type of business you decide to form will have a major impact on the debt obligation, profits, taxes, and other aspects of your business. There are different kinds of business models including DBA, sole proprietorship, business partnership, and husband-wife partnership.

DBA

DBA stands for "doing your business as." This is some kind of label that allows you to run your company under an assumed name. When you file a DBA, you can start a completely different business or expand your current business under the same name. So, DBA can save you a lot of start-up costs. Filing a DBA will cost you anything between $10 and $50, making it the most beneficial business-related expense you can incur. All you need to do to file a DBA is to contact your local county clerk's office. They will guide you through the entire process.

Sole Proprietorship

A business that is started and managed by only one person is called a sole proprietorship. It is the simplest form of business and can be set up with little effort. Businesses that do not require a vast amount of capital and varied skills can be started as a sole proprietorship. In most cases, you can get started with your business without registration. Some might have to register their business with their secretary of state. Sole proprietors enjoy a lot of benefits. There is hardly any paperwork involved for starting the business. There are no extra expenses like start-up fee. A sole proprietorship business is also eligible for exclusive tax benefits. It is important to note that a sole proprietor and his business are considered a single entity by the law.

Business Partnership

When two or more persons come together to run a business, a business partnership is formed. A partnership agreement lays down the responsibility for each partner. The work burden of an individual is considerably reduced and the risk involved in the business need not be borne by a single person. The profits are shared by all the partners in an equal ratio, unless otherwise agreed. A business partnership could be of various kinds and usually the liability and profit ratio vary with the kind of partnership that is formed. For instance, a limited partner's personal property cannot be used for paying business debts.

Husband-Wife Partnership

When you operate your business with your spouse, it is called a husband-wife partnership. The business can gain a lot if it is a husband-wife partnership, especially in terms of tax benefits. You can file all your incomes and expenses under your personal tax return like a sole proprietor. You can do away with all the complicated tax forms that are involved in a normal business partnership. Another benefit that you get when your spouse is your business partner is the reduced tax burden. Both of you do not have to pay self-employment tax separately. There are no security concerns as well because all the assets are joint assets, and there are very slim chances for default by both parties.

Last Updated: December 19, 2011
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