• What happens if an owner leaves or dies • Complexity and cost of closing or reorganizing • Level of government regulation
These factors should be carefully examined based on specific business goals. Working with legal, accounting, and tax professionals can provide valuable guidance in selecting the most appropriate structure. Important : No single business structure fits every situation. As a business grows, the organizational form may need to change. The sections below examine how each factor differs across sole proprietorships, partnerships, corporations, and Limited Liability Companies. Complexity and Expense of Organizing the Business Every business will have some startup costs. These can include writing a business plan, getting the necessary licenses and permits, researching your market, buying equipment, and getting professional advice.
Sole Proprietorship Complexity: Lowest
The sole proprietorship is the simplest and least expensive business form to establish. There are no statutory requirements unique to this structure. From a regulatory standpoint, the owner only needs to obtain necessary business licenses, register the business name (if using a name other than their personal name), get tax identification numbers, and begin operations. Many individuals start as sole proprietors. As the business expands or additional owners are needed for financial or other reasons, they can transition to a partnership, corporation, or LLC.
Partnerships General Partnership Complexity : Low to Moderate
A general partnership is more complex than a sole proprietorship but involves fewer formalities and legal restrictions than a limited partnership, corporation, or LLC. Basic partnership law elements are established by Minnesota Statutes, Chapter 323A, but most issues can be determined by agreement between partners. Key points: • A written partnership agreement is highly recommended but not legally required • The partnership agreement does not need to be filed with any government entity • Under the Revised Uniform Partnership Act (RUPA) of 1997, partnerships have the option of filing certain statements with the Secretary of State regarding partner authority, liability, and partnership status.
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