Choosing a Business Structure

Running your own business is tough work but the rewards can be great; after all, small business ownership has made more people wealthy than any other single factor— including stocks, bonds or even real estate. Despite the risks, owning your own business is one of the best ways to gain financial independence and personal freedom. If you are looking to start a business, you should first decide what type of business structure you want for your company. Types of business entities include:

• Sole Proprietorship
• Partnership
• Limited Liability Company
• Corporation
• C Corporation
• S Corporation
• Non-Profit Organization (NPO)

Each type of business has its own strengths, weaknesses, and tax implications. When starting your business, choose the business structure that best suits your needs, priorities, goals, and resources, as well as your long-term vision of where you want your business to be. Consider the following factors:

• Liability
  • All businesses are susceptible to liabilities, but personal liability varies according to the type of business. For example, if you own a sole proprietorship, you may be personally liable for all debts and claims against the business. To protect your personal assets, consider investing in liability coverage, or incorporating the business as a separate entity.
• Taxation
  • Some business structures offer ways to minimize taxation, so be sure to consider your financial plans and resources.
• Record Keeping
  • Keeping records of your business can help monitor company progress, expenses, and income. However, extensive record keeping for large corporations can be costly and time consuming, so keep this in mind when choosing a business structure.

It is also important to remember that your current needs may not always remain the same. Some businesses end up changing their structure as a result of company growth. For example, many sole proprietorships expand into partnerships or corporations. Consider the future of your company in terms of both business structure and ownership: What will it look like in three, five, or ten years? What will happen to the business after you die? It’s much easier to plan ahead for growth than to change business structures down the line.

Looking to start a business? Incorporate your business for free with Rocket Lawyer.

Laws on this topic may vary from state to state. This content is not meant to provide you with complete information and it is not intended to be legal or tax advice. It is recommended that you consult with your own attorney, accountant or other advisor regarding your specific situation.