When you start a business, you must decide whether it will be a sole proprietorship, partnership, corporation, or limited liability company. Which of these structures is right for your business depends on the type of business you run, how many owners it has, and its financial situation. No one choice suits every business: Business owners have to pick the structure that best meets their needs. Keeping in mind you’re opening an indoor jump center or an outdoor rental company, lets look at some ownership structures below.

Sole Proprietorships

Sole proprietorships are so easy to set up and maintain that you may already own one without knowing it. For instance, if you are making some side income as a freelance photographer or writer, you are operating a business as a sole proprietor. But to make your business legitimate, you may have to comply with local tax registration, business license, or permit laws. And you should be fiscally responsible about running your business, because you are personally responsible for paying all business debts of a sole proprietorship.

Simplest Legal Structure

A sole proprietorship is a one-person business that is not registered with the state as a corporation or a limited liability company (LLC).

If you are a freelance photographer or writer, a crafts person who takes jobs on a contract basis, a salesperson who receives only commissions, or an independent contractor who isn’t on an employer’s regular payroll, you are automatically a sole proprietor.

However, even though a sole proprietorship is the simplest of business structures, you shouldn’t fall asleep at the wheel. You may have to comply with local registration, business license, or permit laws to make your business legitimate. And you should look sharp when it comes to tending your business, because you are personally responsible for paying both income taxes and business debts.

Personal Liability for Business Debts

A sole proprietor can be held personally liable for any business-related obligation. This means that if your business doesn’t pay a supplier, defaults on a debt, or loses a lawsuit, the creditor can legally come after your house or other possessions.

Partnership Basics

A partnership is a business with more than one owner that has not filed papers with the state to become a corporation or LLC (limited liability company).

By definition, a partnership is a business with more than one owner that has not filed papers with the state to become a corporation or LLC (limited liability company). There are two basic types of partnerships: general partnerships and limited partnerships. This article discusses general partnerships, the more common structure in which every partner has a hand in managing the business.
The partnership is the simplest and least expensive co-owned business structure to create and maintain. However, there are a few important facts you should know before you begin.

Personal Liability for All Owners

First, partners are personally liable for all business debts and obligations, including court judgments. This means that if the business itself can’t pay a creditor, such as a supplier, lender, or landlord, the creditor can legally come after any partner’s house, car, or other possessions.

There are a few exceptions to this personal liability. Some of the partners can have limited personal liability if the partnership is set up as a limited partnership. This is a partnership in which only the general partner, who runs the business, has personal liability, while the limited partners, who are basically passive investors, can lose no more than their stake in the partnership. Also, some states allow special limited liability partnerships (LLPs). More commonly, though, businesspeople who are particularly concerned about personal liability choose to incorporate their business or operate as a limited liability company (LLC).

Running a Corporation

Forming a corporation limits your personal liability for business debts, but running one takes work.
Most people have heard that forming a corporation provides “limited liability” — that is, it limits your personal liability for business debts. What you may not know is that there’s more to creating and running a corporation than filing a few papers. You’ll need to keep good records to handle the more complicated corporate tax return and, in order to retain your limited liability, you must follow corporate formalities involving decision making and record keeping. In short, you’ve got to be organized.

Limited Personal Liability

One of the main advantages of incorporating is that the owners’ personal assets are protected from creditors of the corporation. For instance, if a court judgment is entered against your corporation saying that it owes a creditor $100,000, you can’t be forced to use personal assets, such as your house, to pay the debt. Because only corporate assets need be used to pay business debts, you stand to lose only the money that you’ve invested in the corporation.

Exceptions to Limited Liability

There are some circumstances in which limited liability will not protect an owner’s personal assets. An owner of a corporation can be held personally liable if he or she:

• personally and directly injures someone
• personally guarantees a bank loan or a business debt on which the corporation defaults
• fails to deposit taxes withheld from employees’ wages
• does something intentionally fraudulent or illegal that causes harm to the company or to someone else, or
• treats the corporation as an extension of his or her personal affairs, rather than as a separate legal entity.

Limited Liability Company (LLC)

A limited liability company combines the corporation’s protection from personal liability for business debts and the pass-through tax structure of a partnership or sole proprietorship. While it takes a bit more work to set up an LLC than a partnership or sole proprietorship, running one is significantly easier than running a corporation. If you’re concerned about being held personally liable for debts of your business, then an LLC may be just the thing for you.

Limited Personal Liability

Like shareholders of a corporation, all LLC owners are protected from personal liability for business debts and claims. This means that if the business itself can’t pay a creditor — such as a supplier, a lender, or a landlord — the creditor cannot legally come after any LLC member’s house, car, or other personal possessions. Because only LLC assets are used to pay off business debts, LLC owners stand to lose only the money that they’ve invested in the LLC. This feature is often called “limited liability.”

Exceptions to Limited Liability

While LLC owners enjoy limited personal liability for many of their business transactions, this protection is not absolute. This drawback is not unique to LLCs, however — the same exceptions apply to corporations. An LLC owner can be held personally liable if he or she:

• personally and directly injures someone
• personally guarantees a bank loan or a business debt on which the LLC defaults
• fails to deposit taxes withheld from employees’ wages
• intentionally does something fraudulent, illegal, or reckless that causes harm to the company or to someone else, or
• treats the LLC as an extension of his or her personal affairs, rather than as a separate legal entity.

Now that you’ve read about the different options its time to choose. I’m sure you’re already thinking LLC is the way to go – and you’re right. Most inflatable businesses will choose to form an LLC for the limited liability, pass-through tax treatment, and the ability to still have multiple partners in your business venture.To form an LLC you must file a document with the state and pay a fee, which ranges from about $40 to $500, depending on the state where you form your business.