Business Structure

When writing a business plan, your business structure is a necessary piece of information to be included. Every business, from running a farm to starting a software company, needs to decide what type of business structure it will use, and then set about writing a business plan. The choices available are as follows: Limited Liability Company or LLC, Corporation, S Corporation, Sole Proprietorship, and Partnership.

Before writing a business plan, you must research the possible business structures available to your company, and decide which type is right for your company. Here is a quick summary of each business structure, and what each entails. For more information about picking a business structure, the Internal Revenue Service is a great resource.

A sole proprietorship is the simplest business structure. It essentially means that one person owns the business, and that same person is responsible for every aspect of the business, including its liabilities. This business structure means that the business is you, and all the risks that are involved in starting a business are yours and yours alone.

A partnership is just what it sounds like. When you and another person, or several other people join together in a business venture for mutual gain, that is a partnership. Everybody contributes something of value (not necessarily monetary; time and work also count as being valuable) to the founding of the company, and everyone expects to share the profits.

A corporation is usually viewed as a fictional person, and holds many of the rights that individuals do; such as the right to own property. When a corporation is formed, the contributions by the various members are translated into stock in the company. This is beneficial to each individual when company stock goes up, but when it goes down, the "stockholders" cannot claim this loss as a deduction on their taxes, as sole proprietorships and partnerships can do.

Forming an S Corporation is a way for shareholders to avoid being taxed twice: once as a corporation, and again on their personal income taxes. Certain forms of income go untaxed for the corporation, and then the stockholders pay taxes on other forms of the company's income.

A Limited Liability Corporation is a new business structure that can be formed by any number of people (in some states, even one person) as a way to decrease personal liability for the business. There is also no maximum number of allowed "members," which is what the owners of an LLC are called. This is known as "incorporating."

This decision can make writing a business plan tricky. The professionals at Masterplans know the choices available to you and can help you not only select the best structure for your business, but can also write a business plan that gets you noticed.