A very important decision to make when you start your cleaning business is on the type of legal structure your business will adopt. This will be very important because different types of business have different amount of taxes to pay. Also, the kind of business type you will choose will determine also the amount of personal liability you will have in the business. Everybody in the business sector is aware that too much personal exposure in a business undertaking could wipe you out entirely in the event of business failure or when confronted with massive liability payments.
It is therefore necessary for a start-up businessman to spend so much time and thought before finally deciding on the legal structure for his cleaning business.
A business could have any of the following legal entities:
• Sole Proprietorship – It is the most common type adopted by small businesses because it is easy to form and easy to run. As the sole proprietor or owner, you have complete and total control of your business. You are not accountable to any partner or investor as it is only your money that is put into the business. The downside to a sole proprietorship is that being the sole owner, you will be responsible for all the financial obligations of the business. Should your business operations go sour, your personal assets may be used to pay off the outstanding financial obligations incurred by your cleaning business. Another thing is that you will be solely responsible for the employer’s share of the employees taxes which at 15% could mean a tremendous strain on your resources.
• Partnership – This is a legal business structure where two or more partners agree to share on the investment, profits, and losses of the business. Whatever profits realized or losses incurred will be reported on the respective tax returns of the partners. The partners are responsible for the operation, decision making, and most importantly, the financial obligations of the business.
• Corporation – It is a legal entity, entirely separate from the individuals who formed it, that is created to do business. It is a juridical person that is taxed for whatever profits it will make and is liable for any financial obligations it will incur. The main advantage of this type of business is that the people who invested their money into the business do not have personal liability on the business affairs of the corporation. If the corporation will fail in its business, the extent of a person’s liability will be limited to the amount he invested into the company. The downside is that the investors will have very little or no control over the affairs of the corporation. The corporation will be run and managed by professional managers who are paid salaries for their services.
• C Corporations - They are large companies that are publicly held. Shares of stocks of the corporation are sold to the public who get their dividend or share of profit when the corporation makes money. The drawback of this type of business is the double taxation on the profit or income. Before the corporation can pay dividend to the stock holders, they will have to pay taxes for such income. The dividends paid to the stockholders will then be declared as part of their income and will be correspondingly taxed also.
• S Corporations – This is a business type that is not facing double taxation like a C Corporation as they enjoy special tax status with the IRS.
A cleaning business can be the business you are waiting for your entire life. It could bring you the kind of life you had been dreaming off. Choosing the legal structure for your cleaning business can make that dream turn into a reality or a nightmare. Choose wisely.
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