Online craft business are becoming very prominent. There are many types of online crafting businesses ranging from jewelry to knitting to different types of arts. Craft refers to any handmade item that can be given as a gift or sold. The unpredictability of the crafts market is one of the intriguing and challenging aspects of the business.
When beginning a business, we understand that we must decide what form of business entity to establish. Your form of business determines business filings for your chosen structure of business. The most common forms of business are the sole proprietorship, limited liability company, partnership, corporation and S corporation.
The general definition of business structure is the kind of relationship the owner has with his or her business. In other words, this is the legal relationship between the business owner and the business itself and affects how the owner files taxes. For example, in a sole proprietorship, the owner and the business are one entity and thus only one tax form is required. Conversely, in a corporation, the owner and the business are separate entities. As such, the owner and the corporation must file taxes separately.
In a partnership, two or more people share ownership of a single business. Like proprietorships, the law does not distinguish between the business and its owners. The partners should have a legal agreement that sets forth how decisions will be made, profits will be shared, disputes will be resolved, how future partners will be shared, disputes will be resolved, how future partner will be admitted to the partnership, how partners can be brought out, and what steps will be taken to dissolve the partnership when needed. Yes, its hard to think about a breakup when the business is just getting started, but many partnerships split up at crisis times, and unless there is a defined process, there will be even greater problems. There also must decide up-front how much time and capital each will contribute, etc.
Our recommendation for a business structure is a “partnership.” A partnership consist of two or more people. Considering the fact that my brother and I will be in collaboration with our online craft business and after extensive research, we strongly felt that a partnership would best suit our business structure needs.
There are several advantages of a partnership:Partnerships are relatively easy to establish; however time should be invested in developing the partnership agreement. With more than one owner, the ability to raise funds may be increased. The profits from the business flow directly through to the partners’ personal tax returns. Prospective employees may be attracted to the business if given the incentive to become a partner. The business usually will benefit from partners who have complementary skills.
There are also some disadvantages to a partnership:Partners are jointly and individually liable for the actions of the other partners. Profits must be shared with others.Since decisions are shared, disagreements can occur.Some employee benefits are not deductible from business income on tax returns. The partnership may have a limited life; it may end upon the withdrawal or death of a partner.When choosing to conduct a business as a partnership, you must specify what type of partnership. There are three levels for a partnership, and they include, general partnership, limited partnership with limited liability and joint venture.
We’ve chosen to serve as a general partnership. A general partnership is when partners divide responsibility for management and liability as well as the shares of profit or loss according to their internal agreement. Equal shares are assumed unless there is a written agreement that states differently.
We chose to structure our business as a general partnership based on the following factors: We believe that our business will benefit from us as partners because we have complementary skills.In closing, it is our recommendation to form our business as a general partnership based on the factors stated above.
ReferencesKubasek, N.K., Brennan, B.A., & Browne, N. (2009). The legal environment of business: A critical thinking approach (5th ed.). Upper Saddle River, NJ: Pearson-Prentice Hall.