There is nothing more exciting than starting a business. However, before you can open your doors to the public, you need to choose the right business structure. Making a mistake here could cost you time and money in the future.
Some of the most common types of business structure include:
- Partnership
- Limited liability company (LLC)
- Sole proprietorship
- S corporation
- C corporation
Your job is to compare the pros and cons of each option, with the idea of choosing the one that best suits your type of business, goals and future plans.
Here are some questions you can address to help you make a more informed decision:
- What is your risk tolerance in regard to personal assets? When you own a business, your personal assets are often at risk in the event of a lawsuit. Fortunately, some business structures, such as an LLC, limit your personal liability, thus keeping your personal assets safe.
- Are you familiar with how the IRS will tax your profits? This is important, as every structure is taxed differently. For example, a sole proprietorship, S corporation and partnership are all pass-through entities. This means your business income is reported on your individual return.
- Do you have specific requirements regarding management structure? If your business has more than one owner, this may be important to you.
The exact way you choose a business structure may not be the same as the next person, but the details you consider are often similar. If you’re in the process of figuring this out, learn more about your options and the impact your choice will have on the future of your company.
