Corporate Structures: How to Posture Your Heart-Leading Business

In yoga, a student may choose the asana that protects and serves their physical and spiritual goals. Similarly, a heart-leading entrepreneur, such as yourself, will choose a for-profit business structure that serves their personal and professional interests. What’s important to remember is that certain risks, benefits, and protections flow from each structure. 

Sole Proprietorship

This structure involves one owner and one owner only. You may still hire employees and managers, but you own the business assets, make all the calls, and are the star of your own show. Just think of yourself and your business as one in every way. This means that when you enter into agreements respecting your business, you do so personally and not in the business name. Likewise, you will be personally liable for issues arising from the performance of those contracts as well as any wrongs which may occur in the conduct of your business.

While personal liability might seem like a huge downside of the sole proprietor structure, being open and honest in your agreements with others and in the way you conduct your business are well within your control. Plus, sole proprietorships have some major perks. First, they are easy to form, with usually little or no formal processes involved in formation and dissolution. And since your business is not its own legal entity, you only deal in  personal income taxes. This is important for a start-up business which may foresee some losses near the start because you can deduct business losses against other forms of personal income.

Partnership

A partnership is formed by two or more persons carrying on business together. Think of it as sole proprietorship with more than one proprietor. Partnerships are as easy to form and to dissolve as are sole proprietorships. Like sole proprietors, partners are taxed personally for the profits and losses of the partnership. 

That’s right, a partnership is not a separate legal entity. So, just like sole proprietors, partners are personally liable for wrongs or actions arising from the business. This means that you and your partner(s) should create a partnership agreement to reflect each individual’s rights and expectations. You should also outline the processes you will follow when these rights and expectations are not met. 

Many jurisdictions also offer the option of limited liability partnerships, which operate much the same as regular partnerships except that registration is required. In limited liability partnerships, some partners are either partially or fully shielded from liability, although correlating management rights and limitations may attach. 

Corporations 

A corporation is its own legal entity. This is also sometimes called legal ‘personhood’. Unlike sole proprietorships and partnerships, a corporation may enter into its own agreements and can be liable for breaches of contract and other wrongs. Accordingly, corporations pay their own corporate taxes and not personal income taxes. Corporations may sound like big scary monsters. But the truth is that a business owner can register any size company for pretty much any type of business. 

One of the greatest perks flowing from registering a business as a corporation is limited liability. Business owners wishing to register their business as a corporation must follow a formal process as set out in the laws of their jurisdiction. Those owners become ‘shareholders’ and are only liable up to the amount they have invested in shares. 

Limited Liability Company (LLC)

Finally, if you’re an entrepreneur in the United States, you may choose to register your business as a Limited Liability Company (LLC). An LLC combines the limited liability available in corporate structuring with the personal taxation model available through sole proprietorships and partnerships. Check your jurisdiction’s laws for structuring options that are available to you.

Choosing a structure for your heart leading business will involve taking inventory: what are your needs, your values, and your business goals? Take some time to think about these things before choosing the posture that is right for you.  

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