Basic types of businesses include:

• Single owner: This is the oldest and simplest form of business that exists. A single person launches a business that may or may not have employees, a store, etc. The advantage of a sole proprietorship is simplicity. All business income and expenses are reported as schedules on your personal income tax. The drawback is that there is no separation between you and the business. If the business owes money or is found liable for damages, you are personally liable. It’s quite possible that a business mishap could ruin your personal finances.
• Camaraderie: Same as sole proprietor except with two or more people. Once again, simplicity is the main advantage. In addition, the responsibilities are distributed among all the partners according to their participation in the business. The bad news is that disagreements between partners can wreak havoc on everyone.
• Corporation: Think of starting a corporation as giving birth to a separate entity that exists on paper. This entity has many of the same rights and responsibilities as a natural person. Because a corporation is its own entity, it pays its own taxes and handles its own liability, which means individual officers (executives) and shareholders (investors) are typically not responsible for any expenses or damages. However, this protection is not absolute. For proof, just look at the Enron trial. Financial responsibility and protection, plus the ability to sell shares to investors, are the biggest advantages of a corporation. The drawback is that the paperwork and other legal requirements can be quite complex. There are also tax ramifications. Corporations in the United States come in two flavors: S (typically for smaller companies) and C (typically for larger companies). Corporations have a life of their own, which means that they continue after their founders leave or die.
• Limited Liability Company: What if you could have the simplicity of a sole proprietorship with the liability protection of a corporation? The Limited Liability Company (LLC) is a fairly recent phenomenon that has become increasingly popular because it offers the best of both worlds. Like a sole proprietorship, an LLC ceases to exist when the owner dies or leaves the business.
• Limited Liability Company: An LLP is the same as an LLC, except that it is owned by two or more people. This is very similar to the association discussed above. The biggest drawback I see to an LLP is that it ceases to exist when one or more partners leave or die.

How you will structure your business will be one of the most important decisions you will make, and one that could have major, even dire, consequences. This article provides a brief description of the different types of companies. and is meant to get you thinking about how you will structure your own business. Do your homework and learn as much as you can before you even think about making a decision.

There are many companies that will handle the paperwork of filing your corporation and/or LLC. These companies will entice you with offers like “Incorporate today for only $99!” Are these companies quick and easy? Surely. So why spend $1,500 or more to have an attorney guide you through the process? I asked a lawyer that same question and got a very simple and convincing answer: security. In case your business has problems, Your attorney will support your work and represent you in court. Going it alone and finding someone to help you in your hour of need will be more difficult. In my never humble opinion, this falls into the “cheap insurance” category.

Marriage, buying a home, and launching a business are some of the biggest decisions you’ll ever make. I can’t help you with the first two, but I can advise you to take your time, think things through, and always remember that the key question is not “can” but “should”.

Keep in mind that this is the seventh column in this series on starting or reinventing a business, and we haven’t talked about your business plan yet. No, I haven’t forgotten. In the meantime, we’ll talk about professional help and when to get it next week.