If you’re thinking about starting a business, then you’ve got a lot of important decisions to make. Of course, you’ll have to figure out the products or services you will offer to consumers, how to obtain a decent market share, secure supply chains, hire personnel, and come up with a name, but this is just scraping the surface of the choices that will fall into your hands.
Before you even get to that point, though, you’ll need to make a different big decision: the type of business structure you’ll utilize. There are a number of business structures available to you, and each has its own advantages and disadvantages. Let’s briefly take a look at some of the most prevalent business structures to give you a better idea of what each entails.
- Sole proprietorship: This is the easiest type of business to setup, primarily because it doesn’t require the amount of government involvement that other structures face. Here, you are the sole owner of the business and pay personal income taxes on profits. Since a sole proprietorship is not its own legal entity, you, as the business owner, are personally liable for all debts and liabilities.
- Partnership: Here, multiple parties come together to build a business, sharing in its profits, debts, and liabilities. These types of businesses do not pay income taxes like corporations do, but each partner is taxed and the profits he or she receives. There are a number of types of partnership, providing you with some flexibility as to how best to establish a partnership that suits your needs.
- Corporation: There are various types of corporations, but perhaps the most popular is the limited liability corporation. With this business structure, he owners are not personally liable for the company’s debts and liabilities. Here, though, the business is subjected to more extensive government regulations. For example, articles of incorporation are required to be filed with the state, and the roles and responsibilities of board members should be clearly spelled out. Of course, the specifics of a corporation structure depends a lot on the exact type of corporation formed.
As you can see, there are a lot of options at your disposal. Choosing a business structure may seem like a basic decision, but it can actually set the stage for the way your business will function for years to come. Therefore, you need to put a lot of thought into your business’s formation and planning, giving due consideration to long-term implications of your decision. To make sure you are taking a holistic and diligent approach, and to ensure that your business is legally sound, you might want to have a thorough discussion of these matters with a skilled legal professional of your choosing.