Last week we discussed the type of legal business structures that most child care businesses select. This week we want to spend a little more time discussing what decision making process you might wish to use to find the best legal structure for you the owner and your business.
If you are starting a business or are already in business and you are the sole owner of your business and you don’t need to consider any other owners in your business decisions you can make your choice of legal structure on what is best for you financially and protecting your business and family assets:
Sole Proprietorship: This is the easiest form of business and is most prevalent among the smallest child care businesses such as in-home child care. You don’t have to take any formal action to form a sole proprietorship. Your report your income with regard to taxes as one because you and your business are one entity. It is your responsibility to withhold all income taxes including self employment and estimated taxes. This is by far the least expensive form of business to create, you the owner have complete control over all decisions and tax preparation is fairly simple. The process is so easy you might wonder why everyone doesn’t form a sole proprietorship. The reason is you the owner have unlimited personal liability. There is no way to separate you from the business so if something goes wrong because of the business or an employee you will be held liable which can include all of your family assets. Another consideration is if you plan to grow your business and need to raise money or get a loan it is much harder with this form of business.
The sole proprietorship is a great way to get started in business. Once you are up and running, your making money, hiring staff and your business is growing it may be time to consider another form of legal structure to protect your personal and family assets.
Now, what if you are going into business with another person or several other persons, can you still create a sole proprietorship? The simple form of business structure would be a partnership which I do not recommend. Remember above when I discussed the sole proprietor has unlimited liability? Well, with a partnership not only do you have unlimited liability for your actions and that of your business but now you also have unlimited liability for your partners actions as well. There are better legal business structures available for multiple owners. Next week I will discuss choices of legal business structures that you can migrate to from a sole proprietorship and that may make more sense for multiple owners.
Chris is ready to answer questions at 805-238-1818