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Preparing to Hoist Anchor
Businesses do not all fit in the same boat. Before setting sail on your voyage across the seas of entrepreneurship, it is a good idea to spend some time deciding which legal "vessel" will transport you safely to your business destination.

While the options for the legal structure of a new company are numerous, most youth-owned businesses fall into one of these four categories: sole proprietorship, partnership, S-corportation, or C-corporation. Sometimes youth-owned compnaies are structured as limited partnerships or limited liability companies. Each of these "boats" has different advantages and disadvantages when it comes to making decisions, risk of liability, income taxes, and legal and accounting fees.

Sailing Solo — the Sole Proprietor
Kevin Hanks, 18, operates a bike-refurbishing business in Wilbraham, MA. Last year, he went online and filed a DBA, registering his company as a sole proprietorship with the state of Massachusetts. A sole proprietorship means you are a one-owner opeation — you have no co-owners who share the responsibilities, risks, or rewards.

Kevin sometimes worries about his liability risk as a sole proprietor. "If a kid buys a bike, falls off, gets hurt and says it's because the wheel I put on was loose, I could be liable," says Kevin, who sells most of his bikes through online auctions or from his Web site (www.Mass-Bikes.net). "I'm considering getting insurance real soon," Kevin says. If he were to be sued by a customer, Kevin could lose all of his business and personal assets.

On the plus side, a sole proprietorship is the easiest business entity to set up. There are no legal formation documents to file with the government. All profit or loss is reported directly on your personal income tax return, and you get to be the one who makes all the decisions about the business.

"Right now, a sole proprietorship is the most practical choice for me," Kevin says. "This is a lot simpler than a partnership or corporation." However, some youth under 18 find it hard to operate as sole proprietors because they are too young to sign legal documents.

Adding a Crew — the Partnership
Imani has been selling African fashion accessories — jewelry, scarves, purses, and hair adornments — for five years. Based in Philadelphia, PA, her company is known as Imani Scott Accessories.

After studying the various forms of business ownership, Imani decided on a partnership with her mother and father — mainly because she was underage and needed them to sign all the paperwork. Law students at nearby Temple University helped Imani and her parents construct their partnership agreement.

Like sole proprietorships, partnerships are relatively easy to form and have some nice advantages. For example, partners are able to pool their skills and resources in order to build a better business. Profits and losses may be divided among them by whatever percentage they choose. Income (and expenses) "flow through" to each of the partners individually, and taxes are simply paid on each partner's personal income tax return.

The main drawback is that each partner is personally responsible for the debts and liabilities of the company. If the business is sued, all of the partners stand to lose personal possessions and money, as well as the assets of the company.

Today, Imani is busy expanding her business to include greeting cards, stationery, and address labels. "You have to work hard when you're in business," says Imani, "but if you believe in your dreams, they will eventually come true." At some point in the future, Imani plans to incorporate her business.

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