There are many considerations to take into account when deciding on a business structure, making it helpful to understand what they are and how they apply to the entrepreneur or business owner’s specific needs, circumstances and goals. Important considerations to take into account when deciding on a business structure fall into three broad categories including liability, tax implications and control of the business and regulatory and paperwork requirements.
When an entrepreneur is starting up a business, they have many decisions to make. There are a variety of different options when it comes to business forms that they can select. Some business types carry more personal liability for the owners of the business but can provide more favorable tax treatment, while others are considered a hybrid, so knowing the ins and outs is helpful. The greater the personal liability of the owners of the business, the greater the risk so it is an important consideration to take into account when deciding on a business form.
Another consideration is the cost to set the business up as well as the ease of making decisions for the business or terminating or selling the business which are considered the simplest in a sole proprietorship. Additionally, a non-corporate business structure provides more privacy and may offer fewer filing requirements which can also come with fees and additional administrative costs to the business. Expansion and capitalization, however, are typically simpler to undertake in a corporate business structure where a sole proprietorship may run into limitations.
There are a variety of considerations to evaluate when deciding on a business form and it is important for the entrepreneur to weigh them all. Knowing the tradeoffs of each can help the business owner prioritize their concerns and select the best business structure form for the success of their business.