Structuring Your Internet Business

by Owen Jones

The form of legal formation you select for your Internet business can have a major influence on the success or failure of your undertaking. This is because your ability to take decisions speedily, to contend in the market-place and raise extra money if required is directly connected to the legal structure of that business.

There are fundamentally three legal structures to choose from: sole proprietorship, partnership and corporation or limited company. No one form is better than another per se, because each has its own peculiar advantages and disadvantages. Therefore, what is imperative is to choose the legal structure that is best for you.

There are a number of questions that you should ask yourself to help you make your mind up which type of business structure to select. What do I already know about this kind of Internet business? In which areas of the business will I need assistance? How much money will I need to get started? Where will I be able to get funding from, should I want to expand later? What kinds of risks will I be open to later? How can I minimize my liability? What kinds of taxes will I be expected to pay?

Sole Proprietorship
More than 75% of all enterprises in the United States are sole proprietorships. The essence of this kind of business is that they are owned by just one person and normally, that person is directly involved in the day-to-day running of that business. As a sole proprietor, you have total responsibility for that business and all the profits from that business will be yours as well, as will all the debts and liabilities.

The advantages of a sole proprietorship are that you are the only boss, it is very simple to get started, you retain all the profits, income from the business is taxed as your personal income and you can stop whenever you like. The disadvantages are that you assume unlimited liability, your ability to raise investment capital is limited, you have to be able to do everything yourself from book-keeping to advertising, retaining high-quality employees can be difficult and the life of the business is limited to your own life time.

Partnership
A partnership is when two or more people share in the ownership of the enterprise. The partners are responsible for every decision collectively, although decision-making might be divided up unevenly by agreement of all partners equally. All agreements should be written down, preferably in the company of a solicitor.

The benefits of a partnership are that you get the assistance of other points of view, it is easy to get started, more investment capital is available, partners pay only personal income tax, high-quality employees can be made partners to encourage them to stay. The disadvantages are that partners have unlimited responsibility, profits must be shared,partners, may quarrel and the lifetime of the partnership is limited by death.

Corporation
A corporation differs from the other kinds of company, because a corporation is though of as a 'person' by the law. It has a wholly separate existence from its owners. As such it can sue and be sued.

The advantages of a corporation are that stockholders have limited liability, corporations can raise the most investment capital, they have an unlimited lifespan, ownership is easily transferable and they utilize experts. The disadvantages are that they are taxed twice, starting up is costly and they are more closely regulated.