When I ask entrepreneurs what type of business they plan to start, I can always count on hearing exuberant descriptions of innovative product and service ideas. Yet, when banks, credit card companies, and suppliers ask the same question on applications, they expect a different sort of response. They seek to know a company’s legal business structure before making credit decisions.
Why does a company's business structure matter so much? And what is it startup entrepreneurs may not know about the business structure that influences so many other important decisions?
The quick answer to these questions is that a company's legal structure determines income tax rates, the "ownership" of company debts, and the ease in which owners can invite partners and investors into a business.
The simple terms of a sole proprietorship
The leading business structure options available to startup entrepreneurs in most states are a sole proprietorship, a limited liability company (LLC), or one of several types of partnerships and corporations.
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