The Start Contractor`s Basic Shape Is…
When it comes to starting a contracting business, one of the most fundamental factors to consider is the shape of your business. What do we mean by shape? Well, it`s essentially the legal structure of your business; the way in which it is organized and how it operates. There are several shapes to choose from and each one comes with its own set of pros and cons.
The most common business shapes for contractors are sole proprietorship, partnership, limited liability company (LLC), and corporation. Let`s explore each of these in more detail.
Sole Proprietorship
This is the simplest and most common type of business shape. As a sole proprietor, you are the sole owner of the business and responsible for all aspects of operations. You have complete control over decision-making and profits but also bear all financial and legal liabilities. This type of business is easy to set up and requires minimal paperwork, making it the go-to choice for many start-up contractors.
Partnership
A partnership is similar to a sole proprietorship but involves two or more owners. Partners share decision-making and profits, as well as financial and legal liabilities. There are two types of partnerships: general and limited. General partners share equal responsibility while limited partners have less power and liability in the business. This type of business shape is ideal for contractors who want to share responsibility and pool resources.
Limited Liability Company (LLC)
An LLC is a hybrid business shape that combines the benefits of a partnership and a corporation. Owners (members) have limited liability for business debts and obligations, meaning their personal assets are protected. LLCs are less formal than corporations but still offer a level of protection and flexibility. This type of business shape is suitable for contractors who want a level of protection but don`t want to deal with the formalities of a corporation.
Corporation
A corporation is a separate legal entity from its owners, meaning it can enter into contracts, sue and be sued, and pay taxes. Shareholders own the corporation and elect a board of directors to oversee operations. This type of business shape offers the most protection for personal assets but is also the most complex and expensive to set up and maintain. This type of business is ideal for contractors who want the highest level of protection and are willing to invest time and money into the set-up and operation of the business.
In conclusion, the shape of your contracting business will have a significant impact on the level of protection, responsibility, and flexibility you have. Consider your needs and goals when deciding which shape to choose, and don`t be afraid to seek legal and financial advice. With the right shape, your contracting business can start off on the right foot and grow successfully.