The type of business structure you organize for your new enterprise is greatly determined by your personality, realities, needs and experience. Millions of people in the United States never enter into any type of formal business structure. This includes the bulk of the black or underground economy.

It is estimated that the underground economy consists of about 10% of all commercial activity in the United States. This includes legal and illegal activities. A kid cutting your grass for $20 is technically working black. The handyman that repairs your patio for cash might be working black. Drug dealers are definitely kingpins of the underground economy.

Entrepreneurs should not want to work black, but should seek to be totally transparent for many reasons. The reason a person typically seeks to become an entrepreneur is to maximize the opportunity our capitalist system offers each person willing to try. This means playing by the rules, competing and pursuing success utilizing every available legal tool. The opportunity to sell a successful entrepreneurial business is almost zero without complete books, records and tax returns, typically details that underground business works hard to avoid.

I recommend any new entrepreneur seek consultation with an attorney familiar with the laws and regulations of the state, county, city or township of your residence. Even if you are planning to run your enterprise as a sole proprietorship, there are local zoning laws, restrictions on business activity, public announcement requirements, DBA (Doing Business As), fictitious name ordinances, etc. Do not try to avoid the pesky forms and filings required in most localities. If compliance is a hurdle for you, then success prospects for you as an entrepreneur are probably slim.

Your investment in the attorney consultation will pay for itself. You can go online, or visit the business section of the local bookstore and find just enough information to get yourself in trouble in these areas. Occasionally, I meet an entrepreneur that did not consult professionals, and has everything in order. This is very rare. More often, I meet shortsighted dreamers trying to cut a corner and save a few dollars. Professional help will save you time, money and mistakes.

Here are the most common business structures that entrepreneurs have access to when formalizing their new venture.

Sole Proprietorship

This is the most commonly utilized structure for new, small, startup business ventures. Essentially, the proprietor, you, the entrepreneur, announces that you are working alone. The sole proprietor accounts for all income from sales as personal income and is responsible for all debts incurred by the enterprise. Personal and business funds are often commingled in this structure and need to be identifiable for tax purposes. There is no formal corporate entity, but you must adhere to all local laws and statutes. A Federal Identification Number is not needed (use Social Security Number) when filing taxes.

Partnership

When two or more people decide to enter a partnership, they basically agree to enter a form of marriage. We all know that marriages can get messy. Partners must minimize any possibility for a messy divorce by creating a partnership agreement that details what each partner brings to the opportunity (investment, sweat equity, intellectual property, etc.). Also, the partners responsibilities (silent, working, sales, marketing, production, etc.), and an agreed split of income, profits and harvest, as well as liabilities and losses.

I like, and often recommend, a partnership for young entrepreneurs with limited, narrow experience. Operations experience often does not translate to sales and marketing for instance. The only imperative is that there are no surprises after the enterprise succeeds, or fails. This when a cloudy division of liabilities or profits often becomes problematic.

Limited Liability Corporation (LLC)

Again, there are