Business Legal Structure The 4 most common business structures are:Sole proprietorship Example: Freelance graphic design. What it is: A sole proprietorship is a business that's owned and run by one person, where the government makes no legal distinction between the person who owns the business and the business itself. It's the simplest way to operate the business. You don't have to name your business anything other than your own, personal name, but if you want to, you can give it its own distinctive name by registering what's called a Doing Business Name (DBA).
We'll get back to that in the "How to Register a Business Name" section.) Pros: It's easy and inexpensive to create a sole proprietorship because there's only one owner, and that owner has complete control over all business decisions. Tax preparation is also pretty fax number list simple since a sole proprietorship is not taxed separately from its owner. Cons: It can be dramatically more difficult to raise money and get investors or loans because there's no legal structure that promises repayment if the business fails. Also, since the owner and the business are legally the same, the owner is personally liable for all the debts and obligations of the business. How taxes work: The individual proprietor owns and manages the business and is responsible for all transactions, including debts and liabilities.
Income and losses are taxed on the individual's personal income tax return at ordinary rates. In addition, you are also subject to payroll taxes, or self-employment taxes, on the money you earn. (More on self-employment taxes later.) Find IRS tax forms here. 2. Partnership Example: Multiple doctors maintaining separate practices in the same building. What it is: A partnership is a single business where two or more people share ownership, and each owner contributes to all aspects of the business as well as shares in the profits and losses of the business. Pros: It's generally pretty easy to form a business partnership, and it doesn't tend to be super expensive, either.