How to start a business from home online can be a stressful process. Deciding on the right business structure to form for your business, could even be more stressful. Let’s call a spade a spade. It could be hard, especially if you do not have enough information about business and what it entails.
However, you do not need a master’s degree to open up a business. That is why this article will try and answer this question asked by many; “how would I structure my business”?
I am going to give you detailed information about the different types of business structures with their advantages and disadvantages. I am also going to look at structuring business through the lens of an Internet business and what it requires after you have chosen your business structure.
Hopefully, by the end of this article, the information you read will help you choose the right structure for your business both offline and online.
1. The Importance of Structuring your Business.
Before we even look at the types of business structures let’s find out the pros of making this decision. It affects the volume of paperwork your business will have to do. You can take care of the paperwork here if you choose.
It determines how much you are supposed to pay for taxes. Structuring your business also affects your capacity for raising start-up funds. It also impacts your accountability in the types of recording keeping required.
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2. The Different Types Of Business Structures
Let’s look at some of the business structure choices you have and let’s have an open mind when understanding these business structures and then later make an assessment for ourselves.
This is considered the easiest and simplest form of structure. In this structure, it’s only the business owner is allowed to manage and run the business.
The business income is added to your own income tax return through form 1040. This is the most common business structure most of us Internet marketers use.
Advantages Of A Sole Proprietorship
1. The earnings from your business are taxed only one time.
2. You are the only controller of your business.
Disadvantages Of A Sole Proprietorship
1. You are the only one responsible for the losses and debts.
2. It is hard to raise funds in this structure because you depend only on yourself. You can even be forced to use your own sources of funds such as savings.
This is where a business is owned by more than one person. A partnership can be in two forms;
1. General Partnership. Here the partners run the company and they take charge of all the company’s responsibilities including debts.
2. Limited Partnership. It includes general and limited partners. Limited partners act as investors, therefore, they’re not responsible for the company’s liabilities. General partners are the owners of the company and they take charge of all the liabilities.
Advantages Of A Partnership
1. There is no payment of tax on the income of the business instead, it is on the individuals through the profits and losses.
2. Raising money for the company becomes easier.
Disadvantages Of A Partnership
1. All partners have to be involved in decision-making.
2. One partner’s decision can easily affect the whole company.
3. It is more expensive because of the many legal processes.
It is almost the same as a partnership but can be more complicated. It is separated from the owners and stands as one legal organization. Therefore, it has more requirements for tax payments and more rules.
Advantages Of A Corporation
1. The owner is not personally responsible for liabilities.
2. The owner’s assets are safe.
3. The company’s profits can be retained and the owner does not have to pay taxes on them.
4. It is easier to raise money for the company using this structure. For example, by selling its stock.
5. Even if a shareholder dies, the shares can be sold to another or be disabled.
Disadvantages Of A Corporation
1. It is more expensive than the other two structures because of the many legal processes.
2. It is more complicated not only because of the law’s regulations but also because of the accounting services.
3. Earnings are shared among the shareholders as dividends.
4. Taxes are paid on every individual’s income tax returns.
If you are looking at forming a corporation look closer at a Limited Liability Corporation. You can read the pros and cons of LegalZoom.
Structuring An Online Business
Let’s get away from the legal stuff and look at how you should structure an online business. These are a few of the do’s and don’ts to get your business off and running correctly.
1. What problem do you solve? This may be the most important question you answer!
Successful online businesses solve problems. When people come online they are looking for answers to questions they have.
How-to questions are the formation of a much more successful business to date. Look at Google, Amazon, Facebook, and so on. Even look at little businesses such as “how to stop sweating, how to make money online” and so on.
2. Write out a short business plan. Refer to Entrepreneur.com for help
3. Start with a budget. The days of doing everything yourself for free are over.
It is virtually impossible to start a business and rely on a simple website with free traffic. Today you need some startup funds.
At Wealthy Affiliate, we can help you understand this better. Just think in terms of buying a domain name, hosting a website, starting an autoresponder for email, finding products to sell, starting a blog and adding content, and getting people to visit your site.
4. Spend 90% of the time on marketing. Get set up and get to work. I have seen most people fail because all they do is play around with their site changing the color, changing the font, and so on.
The other big killer of success is playing when you should be working. Hanging out on Facebook is not time well spent if you do it all day long.
These are a few tips on how I would structure my business from a legal and Internet marketing standpoint. Don’t overthink it, but do put some thought into it and then get to work! And when you decide what angle is right for you to take action and research all the necessary resources to get you started.
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