Business Structure Hair Salon
A business structure is very important for a hair salon to make it work smoothly. You need a business structure to make a business reach its aims legally and without any hiccups.
There are several types of business structures, and you need to decide the one that fits you the best. This is very important even during any legal problems as not having a proper business, or legal structure can cause you to lose everything you have. Therefore, keep on reading to get some help regarding this matter.
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Best business structure for hair salon
Of course, you need to know the best business structure for a small business like a hair salon. So, here we are to help you decide the best way to protect your business.
Before deciding on the best business structure, you need to know more about the types of business structures. Basically, there are 5 types of business structures. Some information about them are:
Sole Proprietorship: This is also known as a sole trader and is the simplest and most straightforward form of business organization. When there is only one owner responsible for paying all taxes and profiting off the business, this business also doesn’t require any government regulations. Barber or salon owners who don’t have any employees, work from home, or retail, commercial locations usually use these.
Partnership: As the name suggests, this is when a relationship forms between two or more people to start a business but with one goal. All the people involved have to dedicate enough resources, time, and money to share all the profits and losses. This also requires a contract listing what will happen in case of the death of a partner, a partner leaving, a partner no longer capable of working, or the addition of a new partner.
S Corporation: There are two types of corporations. S corporations are usually for small businesses. This type of business structure needs to meet the internal revenue code. If it does, the income directly goes to all the shareholders. This means there is no tax reduction.
C Corporation: Another type of corporation is almost the same as S corporation but more common. This corporation also has a board of directors that they vote on.
Limited Liability Company: Also known as LLC, this type of business combines the characteristics of a corporation with partnership and sole proprietorship. In this, the owners are not personally liable for the company’s debts. It is much easier to set up than corporations and has a lot of protection, so great for small businesses.
What is the best business structure for a hair salon?
So, you must be wondering now that you know what each type of business structure is like. Which one of them is the best for a small business like a hair salon? Well, keep on reading for the answer.
Although it greatly depends on what you require and what you want, people still think the best business structure for small businesses is the LLC. This has a lot of flexibility and protection for new business owners. So, what are the advantages of an LLC business structure?
Liability: The biggest advantage is that all the owners of the company are protected from personal liability of debts, obligations, and lawsuits. This doesn’t mean that you can’t lose any money as you can still lose the money you invested but you can’t lose personal assets like your house and bank account.
Paperwork: Unlike Corporation, LLC requires less paperwork. There are no requirements for any annual meetings or extensive record keeping as it is a pretty straightforward business structure.
Decision making: This is also an easy part of LLC as the owners among themselves decide the ownership structure, voting rights, the right to the profits, and all other aspects. As there is no board of directors or shareholder meetings, there is more time for the owners to focus on the business.
Flexibility: This type of business structure has a lot of flexibility regarding ownership members as there is no restriction to the number and types of owners that a business can have. Moreover, the owners have flexibility in the way they run the business and don’t require a fixed management structure.
Taxation: Another biggest advantage is regarding flexible tax choices. The owners can have the advantage of simple sole proprietorship federal income taxation without the personal liability aspect of the sole proprietorship. They can also have the tax status partnerships, S Corporation, or C Corporation.
Profit-sharing: There is a lot of flexibility in how profits are shared since there is no set of rules that need to be followed.
The business structure of hair salon
We already know the best business structure for small businesses, but what if you can adapt the LLC structure for some reason? What is the second-best business structure for small businesses?
Well, corporations are also used by a lot of businesses. Although big business owners usually use them, they can also have multiple advantages. Some of them are:
Limited liability: As multiple people own the business, multiple people also share the losses, and you alone will not be responsible for them. The creditors can’t hold one shareholder accountable for a debt or legal obligations. In short, there is personal liability protection.
Access to capital: This is also an advantage as this prevents the corporation from going bankrupt in times of need. The owner can raise funds by selling stocks; this also helps expand the business as lenders are more willing to lend capital to corporations.
Tax benefits: S Corporation has some tax benefits as well. The tax on small businesses is very little. You can divide the taxes between businesses and shareholders to tax them at different rates.
Ownership transferability: Owners can easily be changed in a corporation by simply transferring the shares or when the owner dies. This provides flexibility, security, and perpetuity in business.
In conclusion, running a business with a proper plan can make the job much easier. Therefore, make sure to know what you are doing to get the most benefit out of the business you start!
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