Choosing a Business Structure
Question:
I’ve been thinking about creating a natural beverages business.
I will be working alone, part time, and don’t anticipate having employees.
What are my business-structure options?
A: Congratulations on thinking through your new business! The structure of a business can affect the need to register the business with the state, tax status and the owner’s liability.
Here are some options as a solopreneur:
- Sole proprietorship: Many entrepreneurs choose this when they start to test the market without a lot of expense and paperwork. If you are making and selling your natural beverages in your name (e.g., Jane Doe), you do not have to register.
- One of the advantages of the sole proprietorship is you do not have to file a business tax return; any profits or losses are reported on your personal tax return. The disadvantages can be working alone and making all of the decisions, being responsible for all of the money and carrying all of the risk. The sole owner can be held personally liable for business debts and obligations.
- Assumed Business Name: If instead, you open “JD Natural Beverages,” then you are creating a business name that needs to be registered in Oregon with the Secretary of State as an assumed business name, or ABN. In other states, this is known as doing business as, or DBA.
- Limited Liability Corporation: In your situation, you could choose instead — or after you have some experience — to create a limited liability corporation (LLC). Registering as an LLC provides additional visibility and credibility, and can protect your personal property from risk in case of bankruptcy or legal claims.
For taxes, the annual profit or loss can get passed through to your personal income tax filing without the need to file a corporate tax return. However, in an LLC you will be considered self-employed and must pay self-employment tax contributions toward Medicare and Social Security.
There are other forms of business structure, including partnerships and other types of corporations. The Small Business Administration offers additional guidance: sba.gov/business-guide.
Because every Oregon business needs to renew its state registration annually and there may be other local and industry registrations required, it’s a good idea to seek advice from your CPA, tax accountant or attorney.
Central Oregon Community College has a Small Business Development Center that offers free, confidential professional business advising and a variety of low-cost courses to help entrepreneurs through the business lifecycle: cocc.edu/sbdc.
About the Expert:
With decades of small business ownership, teaching and advising experience, Sue Meyer is proud to serve with the team of business advisers at Central Oregon Community College’s Small Business Development Center.
