There are many things to consider when you want to start a new business. Choosing a business structure is one of the important aspects for any new business owner. Choosing a business structure will determine your legal liability level and amount of taxes you need to pay. There are different types of business structure present and you have to choose a one that is most suitable for you and your type of business. You should consider various things like your market, industry, your goals and number of people you want to include in your company, etc. First, let us look into the type of business structure.
Sole proprietorship: This is type of structure is very common and it is easy to form. This type of structure allows the owner to control all the aspects of the business or company. However, the disadvantage is that the owner is solely liable for all financial obligations of the company/organization.
Partnership: Striking advantage of this type of structure is that two or more persons will run a business. It means all profits and losses are shared by the partners and no single person is fully liable for the financial obligations. Another advantage of this entity is that you can avoid paying taxes for your income. The disadvantage with this structure is that each partner is legally responsible for not only his action but also for his partner’s action too. For example, if one of the partners purchase a loan from the bank for the business, then all the partners are responsible for repaying the loan.
Corporation: It is a legal body that is formed to conduct and govern business. The legal body becomes separated from the owner, who will not have personal financial liability. Main disadvantage is the cost involved in forming corporation and need for comprehensive record keeping.
Limited liability company (LLC): Nowadays, many owners prefer this type of structure as it combines the advantages of both partnership and corporation type of business. Some of the benefits of this structure are: limited liability, less recordkeeping, and profit sharing.
Choosing your business structure
You should choose a business structure based on various factors like legal liability, tax implications, cost, flexibility and future needs. Becoming a business owner, you are under risk in various forms. You will be under legal risks, financial risks, all of which affect your personal life. So, you need to choose a business structure by considering various benefits and disadvantages.
For example, if you do not want to put your personal assets under risk of your personal liability, then partnership and sole proprietorship would not be the best option. Similarly, if you do not want to pay big portion of your profits for taxes, then you consider choosing partnership entity. In this ways, you need to consider many things before selecting a business structure. If you do not know what is the best business structure for your business, then you can simply consult a mentor or counsellor, who would provide a advices and suggestions regarding your business.