Before launching a family business, couples have to select a business structure for their organization. The business structure determines the managerial structure of your business and its tax filing requirements. The IRS identifies four types of business structures: a sole proprietorship, partnership, corporation and limited liability company. Though sole proprietorships generally have one owner, the IRS makes an exception for businesses owned by married couples.
Advantages and Disadvantages of Sole Proprietorship
A sole proprietorship is the easiest business structure to establish, which makes it appealing for many couples. In this business structure, the husband and wife control all business decisions and do not have to report to a board of directors -- and sometimes even a staff. However, a sole proprietorship also places all business liability in the hands of the owner. Should the business fail, creditors can come after both business and personal assets to recoup funds.
Qualified Joint Venture
Husband and wife business teams can open their business as a qualified joint venture, meaning both individuals are sole proprietors in the business. The IRS allows this exception for married couples; in other instances, only one individual can own a sole proprietorship. In this business structure, the husband and wife share profits and losses and separate them on their year-end taxes. Both the husband and wife file separate tax returns and, therefore, are sole proprietors for federal tax purposes.
The other business structure option for married couples jointly owning a business is a partnership. Like a qualified joint venture, both the husband and wife will share ownership of the business. They make joint business decisions, and both partners take on full liability of the business. However, they need to obtain a tax identification number through the IRS and file different tax forms than sole proprietors.
The business structure the husband and wife chooses depends on many things. A sole proprietorship -- or qualified joint venture in the case of a married couple -- is the easiest way to start up a business. Moreover, it does not have to meet any state or federal regulations. However, a partnership gives the couple the opportunity to open the business up to more investment partners in the future, which can boost the business's coffers and promote expansion of the business.