When starting a business, there are multiple decisions to make, such as whether you will run it out of your home or have a storefront. And, if you have a storefront, where will it be located?
You must also create a budget, research financing options, and have a solid business plan.
However, before doing anything else, you need to decide upon your business structure because that will impact everything else.
Different types of business structures
The type of structure you select affects your business’s legal liability, tax obligations and potential growth. There are four main types, and each has its pros and cons.
1. A sole proprietorship is the simplest form of business entity. It’s an unincorporated business owned and run by a single individual. There’s no distinction between the business and the owner, meaning the owner is entitled to all profits but is also liable for all business debts, losses or liabilities.
2. Partnerships are for two or more people who plan to run the business together. Profits, liability and management duties are divided among partners. One drawback of a partnership is the potential for disputes when more than one person is involved in decision-making.
3 Corporations are more complex and suitable for larger businesses. They’re independent legal entities owned by shareholders, meaning the corporation itself, not the shareholders, is legally liable for actions and debts.
4. A Limited Liability Corporation (LLC) blends elements of partnerships and corporations. Owners, known as members, are protected from personal liability in most instances, and business income and losses can pass through to their personal income without facing corporate taxes.
While choosing the right structure requires careful consideration, it’s important to remember that your choice isn’t final. As your business grows, you may need to change the structure to meet its changing needs.