For entrepreneurs in Michigan thinking of starting a new business, now may be as good a time as any to jump into the ring with new ideas. In spite of lockdowns targeting specific business sectors and historic high unemployment over the past year, there has been an unexpected surge in new business applications across the nation.
Recent news has reported on the highest number of applicants for new business formation ever seen in the third quarter of 2020. Even though there were over 23 million jobs lost from March to May, almost 1.4 million new businesses kicked off in the same period. It seems the health crisis has sparked a startup boom.
Many of these startups have found a niche in online interaction, in particular online retail. Many who work for large corporations have discovered that in spite of the pandemic, the CEO’s at the top, especially in huge tech-based companies, are doing historically well while the workers down the line are getting laid off or reassigned. Having a chance to own a company and getting a larger slice of profit is becoming more attractive.
Finding the best business structure
In deciding the right business structure for your startup, it is important first to understand the potential concerns of liability, expenses and taxes, and which business entity are suited to your resources and style.
The basic business entities to choose from are:
- Sole proprietorships
- Limited liability corporations (LLC)
Both corporations and LLCs shield the business owner from personal liability, allowing for higher risk activity. Sole proprietorships and partnerships, on the other hand, create much higher levels of personal responsibility for the owners.
There are two basic income tax structures on business profits, those called pass-throughs in which the owners pay tax on profits, and those whose owners will not pay taxes on business profits.
Owners of sole proprietorships, partnerships and LLCs must report and pay taxes on net profits of the business, even if they do not take funds out of the business account during that tax period. Corporations owners, on the other hand, will only pay taxes on profits taken out in the form of dividends, bonuses and salaries.
For a business owner just starting up in the Detroit area, it is important to have a trusted resource to help with the details of business formation, drafting important documents, creating iron-clad contracts and many other essential transactions.