Deciding on a legal structure is crucial when starting a business. Triple I Consulting, a company formation service, bases this decision on an entity’s tax consequences and how much risk an entrepreneur is willing to shoulder. Each model has pros and cons for each model.

1. The Fitting Legal Structure
for Your Startup
SUMMARY
1. Ups and Downs of Going
Solo
2. Together We Stand,
Divided We Fall
3. More Complexity
Requires More Security
and Flexibility
4. An Easy, Safe Way In
Deciding on a legal structure is crucial when starting a business.
Triple I Consulting, a company formation service, bases this decision on an
entity’s tax consequences and how much risk an entrepreneur is willing to
shoulder. Each model has pros and cons for each model.

2. Ups and Downs of Going Solo
Popular among solo business owners as the simplest option, Sole Proprietorship is where
the owner includes all income and business expenses on their personal income tax return. This
means that any business loss may offset income earned from other sources. It's a low-cost and
easy option, especially for risky business concepts. The downside is that the entrepreneur is
responsible for everything – if the business goes bankrupt, or is sued, then the entrepreneur’s
personal assets are at risk. Hence, this setup is for business owners with few or zero employees,
and responsible enough to handle all risks and file their insurance. A good example of these
people are field consultants.
Together We Stand, Divided We Fall
A partnership, on the other hand, is best for businesses owned and operated by several
people. There are two types of partnership, which are general and limited. The first one
involves a creditor who may go after the partners. Meanwhile, the second one involves a
general partner with unlimited personal liability on top of limited partners, whose obligation is
limited only to the amount they've invested.
A partnership is a convenient, low-cost way to form a business. It has significant tax
advantages to reporting share of profits and losses. General partners, however, can find
themselves at risk, even if it’s a limited partner who sinks the company.
More Complexity Requires More Security and Flexibility
Big businesses headed by a board of directors, like
manufacturers and restaurants, need flexibility and liability
protection that will allow them to grow into a large
organization. They need a Corporation: a protective legal
structure independent of its owners in case the company is
sued or files for bankruptcy. This ensures that its debt is not
considered that of its owners, and won’t risk assets beyond
their investment in the corporation. Such security, however,
requires expensive and complex accounting and tax-prep.

3. An Easy, Safe Way In
A Limited Liability Company (LLC) provides the liability protection that corporations enjoy
sans the double taxation, the formalities, and the expensive setup. It’s perfect for businesses
that are just starting out, with the entrepreneurs still seeing how they will fare in the first year
or so. This structure offers even more advantages, as there's no limit on the number of
shareholders here. It also includes all personal earnings and losses in the personal tax returns of
the owners. However, depending on how the entity elects to be taxed, or prefers to handle
complex payroll systems, everyone involved may have to pay self-employment tax on their
share of the draw.
Starting a business seems fun and productive, with the future of the financial world
reportedly foreseen to rise in Asia. Good thing that entrepreneurs aiming to invest in the
Philippines can rely on expert management consultation, among other business services.
Resources:
http://www.tripleiconsulting.com/
http://www.entrepreneur.com/