An Legal Structure
One of the first decisions you need to make when starting a business is to determine the right legal structure for your business. Limited partnerships are usually formed when a person has done most of the actual work and invested another (or different) money. The general partner will usually run the business, and the other partners have limits to their involvement. These would also be described in your agreement. You are not required by law to have a written partnership agreement, but it is wise business practice to do so. Let`s take a look at the options and the pros and cons of each. Of course, your individual situation determines which structure is best for you, so seek advice from a professional lawyer before making a decision. Key takeaways: The five types of business structures are sole proprietorship, general partnership, limited liability company, corporation and cooperative. Choosing the right structure depends largely on your type of business. As your business grows, you can change its structure to meet the requirements. Different corporate structures have an impact on taxes, financing and personal liability.
See which legal structure suits your needs. The structures discussed here only apply to for-profit businesses. If you`ve done your research and are still unsure of the right business structure for you, Friedman recommends talking to a business law specialist. An e-commerce business can be separated into a separate legal entity to avoid the VAT obligation. Sales made by a company located in a particular State may not be subject to the levying of VAT there if the buyer resides in another State. In this example, the VAT obligation is technically incumbent on the consumer (see Taxes – Should I collect sales taxes? below).) If the online business is located in a jurisdiction that does not collect sales tax (for example, Oregon and New Hampshire), the company avoids the requirement to also collect sales tax in its home state. In addition to considering the impact on sales tax, many online businesses try to minimize taxes by organizing in jurisdictions without income tax. Nevada, for example, does not levy corporate income taxes.
Of course, a business that was founded in Nevada but is remotely controlled from another location may still be subject to income tax under the laws of the state from which the business is actually operated. In addition, the company must pay minimum taxes (for example, the annual minimum tax deductible in California or Delaware) both in the state of its incorporation and in the state from which the company operates. By organizing an online department as a separate legal entity in a state where tax levels are zero or relatively low, the company may be able to protect a certain portion of its income from taxes, provided the proceeds are held in that jurisdiction and reinvested for growth. Similarly, some U.S. companies are turning to offshore jurisdictions to organize new e-commerce departments to minimize tax obligations. What about insurance coverage for online business risks? Traditional commercial insurance, such as commercial general liability insurance or error and omission insurance, may not cover many of the risks associated with running an online business. These risks may include liability for trademark and copyright infringement resulting from content posted on a website, liability for defamation or invasion of privacy, and other data protection claims related to the Company`s use, display or dissemination of consumer personal data. Real estate policies only cover tangible property and lack thereof, and they typically focus on hazards typically associated with tangible property losses such as fire, explosion, and wind. Business interruption insurance sold under this property insurance may not cover the loss of electronic revenue due to a distributed denial of service. The standard forms for criminal offences only protect against losses resulting from related fraud or theft of money, securities or other tangible property. Computer fraud and theft of information that result in damage or deletion of information resources considered intangible are unlikely to be covered.
Commercial general liability insurance policies generally do not cover damage or loss of use of assets that are considered intangibles.