You must determine the legal form in which your company should be registered when you start your business. This will ensure your business has the right profile and financial protection for your needs.
Although I am not a lawyer, I have learned a lot from my experience working in many countries across 3 continents. I recommend that you carefully consider the following points.
First, I found it clear in every country where I worked that there was a mix of three or four legal business types. This allowed me to do business legally. The similarities were, for the most part, significant.
A Sole Proprietorship is the most popular of these types of businesses. These business types may be called differently in different countries but fall under the same financial protection and taxation rules.
It is important to know the three main features of this business type.
1. The business’s debts are your responsibility.
This type of legal business type allows you to be the business. The bank could take your home in exchange for business debt. You could lose all your assets, including your car and house if you are sued for something you did in business.
It means your bank accounts will remain in your name as though you have no business. It is possible to register a trading name in most countries. This could be attached to your bank account to receive checks for your business’s reputation.
Remember that although operating a business of this type can expose you to personal liability in certain countries, it is possible to insure yourself against lawsuits. The upside to using your personal credit history to run a business is that it’s cheaper. This, if managed properly, should be fine. All you have to do is pay your bills.
2. Taxes are assessed on your business as if they were you.
The profits you make from your business can be declared as personal income. Your taxable income can also be used to offset most personal expenses related to your business. This could mean you can deduct some of your living expenses if your business is located at home. The company is you. Costs you incur to make a living are tax-deductible.
3. If you are unable or unwilling to sell your business, you may only sell the assets.
Although this won’t be a major issue for most, you must realize you cannot sell your business. The company’s assets, such as trading names, stock, and customer databases, can be sold. However, to transfer debts or liabilities, you must specifically contract for that. Even if the sale is completed, it only sometimes solves all issues that could arise.
These are just a few of the many benefits this type of business can offer:
1. Registering or setting up a website is usually free or inexpensive.
2. The operating costs of a business are significantly lower than other legal forms such as e.g., Your accountant and lawyer will likely be cheaper because the process is simpler.
3. It’s easy to set up, and you can start your business quickly.
4. As mentioned above, you can use your credit history to conduct business. This will make it a lot easier, at least initially.
5. It’s easy to shut down a business if you stop operating it. This type of business can be closed for little to no cost unless you need to liquidate the assets or pay off any debts.
This is the right opportunity for you if you want to run a small business without fear of being sued and are comfortable with your home being used as collateral for business debt.
Although I don’t like this type of business, I recommend you talk with your lawyer and accountant before making any decisions.