Have an amazing business idea that you can’t wait to sink your teeth into? You’re in good company! Many American entrepreneurs are now in the process of choosing the best forms of business ownership to pursue their goals in the marketplace. Recent studies show that America is trending towards a gig economy. Gig workers now make up 34 percent of the American workforce, a number expected to rise to 43 percent by 2020.
This means that being a contractor is on the rise, both in demand and supply. It's a great time to examine your approach to the market and the different forms of business organization advantages and disadvantages to give yourself a competitive edge. An important question to ask yourself in these exciting times is:
What is the Right Form of Business Ownership for My Business?
Business is all about timing, and your ideas aren’t meant to sit on a shelf. Once you know your options for forms of business organization, you can choose the best one for you, and start focusing on your business.
To help you get there, here is a simple breakdown of the different types ownership in legal and practical terms:
The Sole Proprietorship Form of Business Organization
This is a business run by one person only. As the sole owner, you have full legal and financial responsibility for the business. There are three types of business owners in this category:
- Self-Employed
- A member of a Partnership
- An Independent Contractor. While Independent Contractors (IC’s) can register under any type of business ownership, the majority of IC’s choose to register as sole proprietors.
General Partnership
When it comes to forms of small business ownership, two heads can sometimes be better than one. A General Partnership is the term for when two business owners join forces to grow their business while remaining self-employed.
A business owner who is part of a general partnership is still considered self-employed. This is because both members of the partnership maintain personal responsibility for the business. Unlike a corporation, it does not exist as a separate legal entity. As a partner in business, you do not work as an employee for your business or for your business partner-you work for yourself.
Small Business Ownership Structure
The most important difference between a sole proprietor and a small business owner is that as a small business owner, you can hire people. These people can be on your payroll as employees, or hired as independent contractors.
Changing Your Business Structure
You can always change the structure of your business if you decide there's a different best business structure for your small business. The most common reasons to do so include:
- Tax Considerations
- Hiring Employees
- Changes In Ownership
Imagine starting off as a freelancer (this may not be too hard to imagine). A year later, you've reached the point of scaling and needing others to work for you. Congratulations! You would have the option to transition your status to small business owner, by changing the legal structure of a small business.
For detailed information about switching from a Sole Proprietorship/Partnership to an LLC/Corporation, or from an LLC/Corporation to a Sole Proprietorship/Partnership, check out the legal steps to changing your business structure.
When changing between different types of business ownership, make sure to:
- Know your state’s policies
- Inform the IRS of your change
- Get insurance coverage that is tailored to your needs
The future is bright for small businesses in America. In any forms of business ownership, purchasing a simple and affordable small business insurance policy is an excellent way to pave your path to success. For sole proprietor insurance, we recommend getting covered with a policy that is tailored to your needs. Time-savers like a Live Certificate, which provides instant proof of insurance for contractors and business owners, can give you the risk-free running start that your dreams deserve.
