September 30, 2014
To: John Owner
Re: Business Structure Advice I appreciate you contacting me in regards to forming your business. There are several factors to consider when forming a business and determining how it will be financed. I will list a few options below along with information that will help you in your decision making process; this information will include the advantages and disadvantages of each, and possible tax consequences for each scenario. Choosing a business to be a sole proprietorship can be a great option if you are seeking simplicity. Being a simple structure means easier to manage, such as doing taxes, paperwork, and the overall startup of the business. Being able to have a legitimate business is done with a few simple steps when creating a sole proprietorship; these steps include getting a DBA (Doing Business As) and getting any proper licenses that the state requires. With the simplicity of this structure it means less paperwork all together as well as less hassle when filing taxes. This business structure makes it so you wouldn’t have to file your business separate from your personal taxes. This decreases the time and effort it takes when filling taxes. A con of sole proprietorships is that your personal assets are up for stake if something were to happen to your business. If your business was to be sued or creditors came after the business there is nothing to protect assets not related to the business. Another drawback is that it is not possible for any expansion; if this was an option in the future then it will have to be changed to a formal business structure. A sole proprietorship might not seem as reliable compared to other corporation just because it is such a simple process to become one. The next business structure discussed is Partnerships. These are also considered simple to start up and maintain compared to a corporation. Another pro is that there is a chance for growth in the future unlike a sole proprietorship. Making decisions can be easier because getting approval or input is a quicker process when not dealing with as many shareholders. A few cons of a Partnership is the instability that could be caused by someone in the partnership. If your partner quits or decides to stop putting effort forth it could impact the business. When in a partnership it can be difficult to severe ties with a partner. Some partnerships will discuss this in the beginning to prevent any issues in the future. The final business structure is a Corporation. An advantage of this structure is that your assets are separate from the businesses because it is viewed as a separate entity. A Corporation is more likely to attract investors; they have a better reputation and more reliable compared to being a sole proprietorship or partnership. The structure is usually more professional; roles and duties are defined clearly. The cons of this business structure is the time and costs that it will require. There are a number of documents that need to be prepared and filed along with any necessary application fees. Another con is the potential tax liability; it is possible for a business to be double taxed. Each option has their pros and cons; each business is different and it is important to decide what is best for you and your business. I have provided basic knowledge of the different options you have; please contact me with any additional questions.

Thank you,