You may be thinking “Ok we discussed the steps, but I am still unsure of what business structure is best for my business”? Not to worry when just starting all of this can sound so daunting! That is probably why you decided to join this blog to learn a thing or two about owning a small business and the world of face painting. So let’s get into it!
Let me first start by reminding you of the different business structures.
-Sole Proprietary
-General Partnership
-Limited Liability Company
-Business Corporation
-Nonprofit Corporation
so what do these all mean? Let’s begin!
SOLE PROPRIETARY
To be considered a sole proprietary business you must meet the following standards (Based upon the state of Oregon). First, register your business name, second, create a business plan (optional but recommended), third be a single owner as well as sole owner of all debt to the company, pay taxes on your personal income tax return, and lastly, be responsible for ALL business decisions.
GENERAL PARTNERSHIP
Okay, so maybe sole proprietary is not for you and your business that is ok! there are plenty of other options to review. Let’s look at general partnership. Comparatively, to a sole proprietorship, you are not required in Oregon to register your business with the state other than setting up a name for your company and selecting a business structure. Where these two differ is the rest of the structure of the business. A general partnership is a partnership between two or more members all with ownership of the company. You have unlimited personal liability for your business’s debts as well as your partners’ actions. In the partnership agreement you should have listed what each owner will be responsible for in the business, and how they will perform said tasks. Ex: say you and I own a face painting business together and we decide in the contract that you will be responsible for the actual face painting and I am in charge of bookkeeping, scheduling, etc. Then by law, you must own up to at least your part in the business, not to say you can’t help your partners when needed if qualified. Lastly, similar to a sole proprietorship you all will file your business under your personal income taxes the difference being you each will report and pay your fair share of the taxes.
LIMITED LIABILITY COMPANY
Here is where things can begin to get a little tricky to understand. With an LLC you ARE required to file articles of organization as well as annual reports. There can be a single or multiple membership LLC depending upon you and your business’s needs that is up for you to decide. This time around all members have a limited liability of debts in the company. What does this mean? simply put, it means you and the other members are NOT responsible for the business’s debt only your investment within. So this means if a business is being sought after for debts owed a debt collector cannot go after the owner’s personal assets only the assets of the business. For tax purposes, you and your members may decide to file your taxes as a partnership or a corporation for profit. Whichever you choose, make sure you and the other members are all on the same page you don’t want the state or the federal government knocking on your business’s door!
BUSINESS CORPORATION
Like an LLC, a business corporation must file articles of organizations and annual reports. You must have a bylaws document. This is different from a partnership agreement as bylaws work around the day-to-day operation, whereas, in an LLC a partnership agreement explains each person’s role within the company. Examples can include when meetings are held, stock holds, Voting, and more. With a business corporation expect to have one or more shareholders (financial investors) invested in the company. For tax purposes, the corporation will pay taxes on any income made, while the shareholders are responsible for the dividends.
NONPROFIT CORPORATION
A nonprofit corporation by definition according to (https://www.law.cornell.edu/wex/non-profit_organizations) is “A group organized for purposes other than generating profit in which no part of the organization’s income is distributed to its members, directors, or officers”. All operators of the business are not held personally liable for any of the business’s debts. There are no owners of the business and you are still required to file articles of organizations and annual reports. Your business will still pay taxes on income unless it has been exempted by your state or federal government.
With all this information written out for you, I hope this helps you to understand a little better what business structures are and how to decide which one is right for you. As face painters some of the options here that would best suit your needs would be Sole proprietary or LLC, others not included are s corporations and c corporations. These are good for businesses that are on the larger side and may have more than one face painter on a regular salary. I just want to end with I am not a legal advisor by any means so if you are looking to set up your business tax and legal documentation I suggest you see a small business lawyer, Certified Public Accountant, or visit Oregon’s small business page linked below to set up an appointment with an advisor.
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