Home Small Business Should Small Businesses Consolidate or Maintain Independent Ownership?

Should Small Businesses Consolidate or Maintain Independent Ownership?

Starting a new business is all about flexibility. You have the opportunity to set your own hours, be your own boss, and spend the time and energy doing the work you are passionate about every day. One additional area of ​​flexibility is entity formation options.

Most small businesses start out as a default entity called a sole proprietorship. Some entrepreneurs may prefer to be sole proprietors and exercise control over their business. They can choose to keep this form of entity intact.

However, a single ownership is also considered an unincorporated entity. It is one of the few business entities that do not offer limited liability protection. Limited liability protection is a key benefit of forming a consolidated business.

If you are uncertain whether to keep sole ownership or combine your business, consider a few factors.

The sole owner is solely responsible for the business

The owner of a single owner is the boss. No other partner or member is associated with the business. As such, they can make a decision as they see fit and run the company on their own terms.

However, there is a tricky point about being your own boss. A single owner is responsible for the good that happens to the business – as well as the bad. From a customer accidentally injuring your storefront and suing you to struggling to pay off accumulated business debt, there are a number of liabilities that can have a negative impact on both the business and the owner. its.

Combined offers limited liability protection

Continually consider “what if?” In the event of a precarious situation it is often not ideal for entrepreneurs. Starting a business is difficult and it is important to maintain peace of mind. Some single owners may see a slight edge if they combine or form a limited liability company (LLC).

Consolidated businesses, including LLCs, provide business owners with limited liability. This creates the separation between professional and personal assets. Limited liability protects the owner’s personal property, including homes and cars, in the event of an incident that can be considered a liability to your business.

Photo credit: Simon Holland / Flickr

There are even more benefits when combined

Leaving aside limited liability, combining a business gives business owners more of the benefits needed to run their company successfully. Some of these include, but are not limited to, the following:

Tax benefits

This is often one of the most common benefits of combining or forming an LLC. Consolidated businesses are likely to be taxed as a transitional entity formation. If they are not already this organization, they may choose a transitional entity such as S. Corporation. On the other hand, sole owners are also responsible for reporting all income on their tax return. They pay personal and business taxes, which can often make a tax bill expensive.

Drafting an agreement

Consolidated businesses, such as an LLC, may be run by multiple members. You can decide if you want to be organized as an LLC member manager or a managed LLC manager and draft an operating agreement outlining each member’s roles and responsibilities. This type of agreement cannot be drawn up as the sole owner who normally runs the business on their own terms.

Form a specialized organization

Entrepreneurs in specialized professions, including lawyers and physicians, can choose to associate with a professional corporation (PC) or professional limited liability company (PLLC). The business people who set up this organization may limit their personal liability for claims related to a partner’s errors or negligence. A single owner in a licensed profession, like accountants or architects, may consider this type of association for their business.

Should I incorporate or be a sole owner?

Now that you have a clear understanding of what a sole owner is responsible for as well as the benefits of the establishment, it’s time to make a decision for your small business.

However, we personally cannot tell you which option is best for your business. Every business has its own unique needs. Contact a legal professional for further guidance and answer any questions you may have about merging as another entity or as a sole owner.



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