Investment structuring is the strategic doling out of investment money to different entities that will manage it via loans, joint ventures, leveraged acquisitions, participating debt, triple-net leases, and convertible debt (InvestorWords).
Investments are generally held on either an individual basis (ex: title to a property), or on a pooled basis, where the investment is owned beneficially by a number of investors. This may be pensioned or non-pension based (in:review).
The type of structure chosen, along with the location established, can have different outcomes for investors including fees charged, taxes owed, and how legal recourse will be handled. Along with each structure comes different rules and purposes, presenting different pros and cons for the entity. Be sure to weigh all options to determine what is the best fit for your venture.
Below are the most popular investment structures chosen by investors:
Sole Proprietorship: this is the most basic of all the business structures and the most common structure chosen to start a business. It is an unincorporated business owned and run by one individual with no distinction between the business and the owner. This You are entitles you to all the profits I’m sure you’re going to accumulate, but it also makes you responsible for all your business’s debts, losses and liabilities if things don’t pan out as planned.
Partnership: if the single life isn’t for you, and you require companionship a partnership may be the right structure for you. A partnership is a single business where two or more people share ownership.
Just how a relationship should go, each partner contributes to all aspects of the business, including money, property, labor or skill. Keeping it 50/50, each partner shares in the profits and losses of the business.
There are a few different varieties of partnerships, each with different hobbies and interests. To hear more about these, take a gander at my previous post. You’ll be sure to get the 411 you need.
Limited Liability Company: A limited liability company (LLC) is the mullet of investment structures. It’s all business in the front, with a slightly more relaxed business casual style in the back. LLC’s provide the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership.
The “owners” of an LLC are referred to as “members”, keeping the chill theme associated. Depending on the state, the members can consist of a single individual, two or more individuals, corporations or other LLCs.
LLCs are also not taxed as a separate business entity. All profits and losses are “passed through” the business to each member of the LLC., where members report profits and losses on their personal federal tax returns, just like the owners of a partnership would.
Corporation: If you’re the type that enjoys calculus or understood what was going on in Inception after only one watch, you may enjoy the climb of corporate ladders.
Corporations are the most complex of the investment structures and tend to have costly fees and hard to comprehend tax/legal requirements. Because of these issues, corporations are generally suggested for established, larger companies with multiple employees. AKA “ballers”.
Keeping it business professional, corporations are owned by “shareholders”, and these shareholders are not held liable if the corporation were to fail. Think of a corporation as a bulletproof vest in a gunfight.
For more detailed information visit the SBA (Small Business Administration) website