Business structures

When starting a business, there are several different types of business structures to choose from, such as a sole proprietorship, a partnership, or a corporation.

A Sole Proprietorship is one individual or married couple in business alone. Sole proprietorships are the most common form of business structure. This type of ownership is simple to form and operate, and may enjoy greater flexibility of management, less legal regulation, and fewer taxes. However, the business owner is personally liable for all debts incurred by the business.

A General Partnership is composed of two or more persons (usually not a married couple) who agree to contribute money, labor, or skill to a business. Each partner shares the profits, losses, and management of the business, and each partner is personally and equally liable for debts of the partnership. Formal terms of the partnership are usually contained in a written partnership agreement.

A Limited Partnership is composed of one or more general partners and one or more limited partners. The general partners manage the business and share fully in its profits and losses. Limited partners share in the profits of the business, but their losses are limited to the extent of their investment. Limited partners are usually not involved in the day-to-day operations of the business. Filing with the Office of the Secretary of State is required.

A Limited Liability Partnership (LLP) is similar to a General Partnership except that normally a partner does not have personal liability for the negligence of another partner. Filing with the Office of the Secretary of State is required. Professionals such as accountants and lawyers use this business structure most commonly.

A Corporation is a more complex business structure. As a chartered legal entity, a corporation has certain rights, privileges, and liabilities beyond those of an individual. Doing business as a corporation may yield tax or financial benefits, but these can be offset by other considerations, such as increased licensing fees or decreased personal control. Corporations may be formed for profit or nonprofit purposes. Filing with the Office of the Secretary of State is required.

A Limited Liability Company (LLC) is composed of one or more individuals or entities through a special written agreement. The agreement includes: provisions for management, ability to assign interests, and distribution of profits and losses. Limited liability companies are permitted to engage in any lawful, for-profit business or activity other than banking or insurance. Filing with the Office of the Secretary of State is required.

A Massachusetts Trust is an unincorporated business with the property being held and managed by the trustees for the shareholders. The trustees are considered employees since they work for the trust. Filing with the Office of the Secretary of State is required.