Quick-start guide to moving your service, craft to official level

Quick-start guide to moving your service, craft to official level

So you’ve been tinkering with that thing for quite a while, that contract work or product or craft.

People are starting to tell you that you should start your own business. There are lots of resources out there on how to hone your idea. But when it comes to the nuts and bolts of making it a legal, official business, where do you start?

Which type of business structure is right for me?

According to the U.S. Small Business Administration (SBA), there are six kinds of business structures ranging from a single person to large, established companies.

If you’re going into business in a big way, setting up some sort of corporation may be right for you now, or it may be right for you one day as you grow. But many sources advise starting more simply.

If you choose to start simply, the place you may want to begin is with a sole proprietorship or a limited liability company (LLC).

How would I start a sole proprietorship? And why?

A sole proprietorship is “by far the most common type of business, the easiest to set up and the one that most businesses end up starting as,” said Jerry Osteryoung, director of outreach services at the Jim Moran Institute for Global Entrepreneurship at Florida State University’s College of Business in Tallahassee, according to Inc. magazine. “You can always migrate up to an LLC or a corporation, but when first starting a business you need to make sure it’s easy to start.”

How do you start it? According to SBA, it’s so simple you may already have one and not know it.

“You do not have to take any formal action to form a sole proprietorship. As long as you are the only owner, this status automatically comes from your business activities,” according to SBA. “If you are a freelance writer, for example, you are a sole proprietor.”

The only startup costs involved are obtaining state business licenses and permits. And you have complete control of your business decisions without having to consult anyone else. Tax prep also is easy because your business is not taxed separately.

You’re entitled to all the profits, but also responsible for all the business’ debts and liabilities.

How would I start an LLC? And why?

Not being solely responsible for your business’ debts and liabilities would be one of the appealing features of migrating up to an LLC structure instead, according to NOLO.com, which publishes do-it-yourself legal guides.

“You should consider forming an LLC if you are concerned about personal exposure to lawsuits or debts arising from your business,” NOLO.com writes. “For example if you decide to open a storefront business that deals directly with the public, you may worry that your commercial liability insurance won’t fully protect your personal assets from potential slip-and-fall

lawsuits or claims by your suppliers for unpaid bills.”

According to howtostartan-LLC.com, more than 1.2 million LLCs are started in the U.S. every year.

“Forming your business as an LLC brings added credibility,” the website says. “An LLC is recognized as a more formal business structure than a sole proprietorship or partnership.”

In addition to business licenses, you have to pay formation fees, filing fees and an annual state fee. But the structure still benefits from simple, pass-through taxation. “In the eyes of the federal government, an LLC is not a separate tax entity, so the business itself is not taxed,” SBA writes. “All federal income taxes are passed on to the LLC’s members and are paid through their personal income tax.”

For more information about small business structures and to explore which one is right for you, visit www.sba.gov/starting-business/choose-your-business-structure. (TAB)