You’ve finally built up the resolve to do it; you’re going fulfill your lifelong dream of opening a kitten grooming salon. Or some other brilliant business venture. Let us assume that you’ve already done research on the market and have indeed verified that the kitten grooming industry is booming.  The business plan is drafted. It’s time to decide what the legal structure of your new business will be.

Here we will explore some of the most basic legal structures that a small business can choose from. The most likely for a small business are Sole Proprietorships, General and Limited Partnerships, and LLCs.

Sole Proprietorship

A Sole Proprietorship is the simplest form of business entity, the easiest to form and easiest to dissolve. If you have no employees, it’s as simple as starting to work. Legally, being a Sole Proprietorship means that you and your business are one and the same. Your business is not a distinct entity, rather a part of yourself. All income and losses are filed along with your own personal tax return. Being the only arbiter of your business keeps things streamlined, but the other side is that there is no protection for debilitating losses. If the kitten grooming industry tanks, all losses are your own. In addition, there are no protections from liabilities you may incur (like when you get sued for giving Mr. Muffins a perm).

This kind of structure makes the most sense for businesses with no employees, no physical storefront, and should mostly be considered for industries where specialized regulation or personal liabilities aren’t a major concern. Kitten grooming can most likely swing it as a Sole Proprietorship. Tobacco sales or chainsaw manufacture had best look elsewhere.

General and Limited Partnerships

Partnerships pertain to businesses owned by two or more people. A general partnership has ownership/operations split equally, while a limited partnership states that one person is in control of the day-to-day handling of the business, while another contributes capital or services that warrant a cut of the profits. In a way, Partnerships are as simple as Sole Proprietorships – the business is still not a distinct entity, which means that taxes are filed on each co-owner’s personal income tax returns. But just like Sole Proprietorships, there’s no liability protection. Under a General Partnership, you and Auntie Brenda can open up your kitten grooming salon and divvy up the work and profits relatively easily. But Partnerships can come with interpersonal issues, and while Illinois and the US government might require relatively little paperwork to form a General Partnership, you’re most likely going to want to safeguard your business with clearly defined contracts. A third-party mediator, such as a lawyer, can help draft and enforce these contracts, and they can do it without bringing up whatever Auntie Brenda did at the last family reunion.

Limited Liability Company

Also called an “LLC,” a Limited Liability Company is the easiest business entity to form and operate. Unlike Partnerships and Sole Proprietorships, the LLC is well and truly a separate business, which needs its own bank account and tax returns. Forming an LLC is a bit more complex, but it comes with its benefits. Under an LLC, members are protected from liabilities of the company, so long as the business is operated in a legal, ethical, and responsible manner. If the kitten grooming industry unexpectedly tanks due to a catastrophic shortage of cat combs, you can fold your LLC with less losses than you might have under a Partnership or Sole Proprietorship.

Our legal assistance can help guide new businesses through necessary government registration, forms, and licenses. Generally speaking, the more money and people involved, the more difficult things can get, and the more you’ll want to get concrete details down in writing. When dealing with your own livelihood, it is important to get these details right.

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