Choosing the best business structure for your new business is an important step which is why you may have many questions. Determining the best business structure depends on the current needs of the business and the long-term goals the entrepreneur has for the business. Different business forms have different tax consequences, reporting requirements and liability implications so it is best to know which is right for your situation.
There are generally four primary types of business structures including sole proprietorship, partnership, limited liability company and corporation. A sole proprietorship is the simplest business form, however, its owner is personally liable for all of the company’s financial obligations. Partnerships refer to the engagement of two parties in a business. A partnership enjoys pass-through taxation, however, each of the partners are personally liable for the financial obligations of the business.
A corporation shields those engaged in the business from personal liability, however, the business form is also associated with a number of different formalities, reporting requirements and additional costs. Corporations are also sometimes considered doubled taxed because the entity is taxed in addition to personal tax liability for shareholders and others. A limited liability company (LLC) is a business form that enjoys pass-through taxation but also shields members from liability. Each business form also has implications for management of the business it is helpful to also be familiar with.
The business structure you select can also impact the ability of the business to raise money, such as if you plan to take the company public in the future, so there are a number of important considerations to take into account for the short and long term when selecting a business structure. Whatever business form you select for your business, it is a decision that should not be taken lightly and you should ensure you have all the information you need to make the best possible decision for you and your business.
Source: Entrepreneur, “Choose Your Business Structure,” Accessed April 19, 2018