Types of Businesses and How Each Affect Your Finances
As you open your company, one option you must consider is whether you want to start out on your own or if you want partners. The type of corporate structure that you choose will determine how you file for taxes and apply for a loan. These options can directly affect your credit or operate independently from you. Here are a few types of businesses and how they affect your finances.
Starting a Corporation
When you start a corporation, the organization itself is responsible for the debts that it has. It also receives the profits instead of the money going to an individual or a group of people. If you are managing this business, that means that your credit will be excluded when the company needs to ask for a loan. Only the rating and financial records of the entity will be considered by the bank. While this gives you more options for lending, the process can be challenging and take far longer. Be as organized as you can and give yourself plenty of time when seeking out assistance for this type of corporate structure.
Joining a Partnership
Starting a business with two or more people with equal responsibility between all of you is a partnership. You share the day to day responsibilities of operating your company. You own the same amount of shares in the assets and debt brought on by the organization. It also means that the bank will look at the finances of all those involved when you need a loan. If one member has less than ideal credit, you might need to bring a few more investors onboard to qualify. You can include someone in this corporate structure that will be involved when the lender is considering your credit but can be excluded from the debt you owe.
Being a Sole Proprietor
If opening a company on your own is the option that works for you, you would be considered a sole proprietor. This means that you make all the decisions in your company, from determining what stock to order to which employees to hire. It also means that, for tax purposes, that you are the organization that you started. Any debt or profit is your responsibility and all assets belong to you. If you ever need to get a loan to finance an expansion or purchase new equipment, the bank will consider your personal credit before they issue it. You must have a high rating to be considered for financing. With this corporate structure, a line of credit or a business credit card might be a more feasible option for this situation.
