What form of business ownership would be suitable for starting a wedding planning service?

Expert Answers

An illustration of the letter 'A' in a speech bubbles

A new business owner just starting up a wedding planning service has several forms of business ownership to choose from, including sole proprietorship, partnership, limited liability company (LLC), and corporation. Let's review each of these and then determine which one might be best for this type of business.

A sole proprietorship is probably the least complicated type of business although it does have its tricks. Basically, the owner and the business are legally one. The owner is personally liable for the business, so this is a risk (although insurance, good decision making, and detailed contracts can help). Taxes are paid by the owner, not the business.

A partnership is formed between two or more people who create and agree to abide by a partnership agreement. While the partnership files a tax return, the partners are each responsible for paying their own share of the taxes. Further, the owners are personally liable for the partnership, and this involves some risk. Complications can also arise when the partners disagree about business operations.

An LLC is formed through the state in which the business is operating by submitting articles of organization, an operating agreement (sometimes), and a fee. In an LLC, owners become members, and they are not personally liable for business obligations, lawsuits, or debts. This lessens the risk for members. LLCs file a tax return, but the members all receive shares of the income that they must report on their own taxes (or losses as the case may be).

Finally, corporations are very complex and not usually a good idea for small business. Corporations have shareholders rather than owners, and corporations pay taxes in their own right. They are more difficult to create and operate, but shareholders do not have liability, and corporations allow for investors in the business.

Now let's think about which type of business ownership model a wedding planning service should have. That actually depends on the size of the business and the number of owners as well as a few other factors. If there is only one owner and the business is small, a sole proprietorship would likely work best as long as the owner is willing to accept liability. A partnership could work if there are two or three owners, but they would need to make a detailed partnership agreement about how the business is to be run and who is responsible for which operations. If liability is an issue, than an LLC would be the best choice for a business with more than one owner, even though it would take more work to establish. A corporation is not a good option for this kind of business.

Last Updated by eNotes Editorial on