For some background we’ll start with a high level overview of the different types of business entities. We will then make a recommendation of what business entities, we think, are the most appropriate for your mobile car wash and detailing business.

The goal of this topic is to get you thinking about the best entity structure for your business. After reading this, you should have a pretty good idea of what structure you want in place. Don't go running out yet to form your entity - we'll cover the mechanics shortly.

Major Types of Business Entities

Sole Proprietorships
By the far the most common form of business entity is the sole proprietorship. In this entity structure you and your business are practically considered the same thing. Establishing and maintaining a sole proprietorship is really quick, easy and inexpensive. As a sole proprietor, the profits from your business flow directly to your personal tax returns. As such, filing taxes is a relatively straightforward affair.

You can form and continue to operate as a sole proprietor as long as you are the only owner in the business. Having said that, the IRS does allow you to share ownership with your spouse.

The upside of a sole proprietorship is the ease of establishment and ongoing management. The downside is that, since you and your business are consider one, you are personally held liable for any damages caused by the business. Many sole proprietors address this issue by purchasing business insurance. However, even insurance can't prevent all kinds of damages from reaching your personal assets.

General Partnerships
In our minds, general partnerships are the absolute worst kind of entity structure you could choose for your mobile car wash and detailing business. First of all, people are people and you can never be 100% sure of how your business partnership will play out.

There are so many risks with partnerships we could actually take up a whole section on the matter. However, to keep things brief, just remember these downsides of a partnership:

• Any partner in your partnership can enter into a legally binding agreement without the other partners' approval.
• Partners are held liable for damages caused by other partners.
• In many states, if a partner chooses to leave, your business automatically dissolves.

While there may be some instances where a general partnership makes sense, we can't seem to think of any reason why you would want to choose this option for your mobile car care business.

Corporations
Corporations are the big-daddy of business entities and provide a liability shield between you and your business. In other words, if the business is sued, the suitors can't come after your personal assets (there are some exceptions, fraudulent activity being one). Corporations are also able to issue stock which provides another funding alternative.

From your perspective as a mobile car wash and detailing business owner, there are some downsides you should be aware of if you are thinking of forming your business as a corporation.

• Corporations are the most expensive entity to establish and maintain. In addition to the setup costs and activities, you will also be required to file yearly documents to keep the corporation current.
• You may be taxed twice as a corporation. Your business will pay taxes on net income and then you will pay taxes on any dividends you receive.

Corporations do provide a tremendous amount of flexibility for larger companies. However, as somebody just starting out in business, this flexibility may be lost in all of the paperwork and logistics of properly maintaining your corporate status.

Limited Liability Company (LLC)
The Limited Liability Company is the newest business entity structure and continues to be the fastest growing. An LLC offers liability protection like a corporation with the relative ease of establishment and taxes like a sole proprietorship.

One added feature of an LLC is that you can elect to be taxed different ways. For example, if you want to save taxes on the fringe benefits you receive from your company, you could elect to file your taxes as a corporation. If you have multiple members in your LLC, the IRS will automatically tax your business as a partnership.

Nonprofit Corporations
There's really no reason (or even a possibility) that you could form a nonprofit corporation for your mobile car wash and detailing business. First of all, we're going to assume that you are staring this business to make a profit!

The only reason we're including the nonprofit corporation in this list is that we've actually heard of people trying to form their businesses as a nonprofit to avoid paying taxes. This is utterly ridiculous and we assume that you have more important things to worry about (like finding the perfect detailing trailer) than trying to cheat the system.

The type of business entity you ultimately choose should be based on two primary factors: your liability exposure and tax considerations. For this, we recommend that you speak with either a good accountant or lawyer who has experience with entities.

If we were asked to pick the entity structure for your mobile car wash business, we would either select the sole proprietorship or limited liability company (LLC). The sole proprietorship is less expensive but also has greater risk. The LLC is a bit more involved to start and maintain but provides much more protection between you and your business. If you are considering starting your business with others, you will definitely want to consider the LLC option since it allows multiple members.

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