Once you decide to start a business, it’s critical to choose the appropriate structure. With so many to choose from, you’ll want to compare the pros and cons of each one, thinking about the impact on your organization now and in the future.
Your options run deep, including:
- Sole proprietor
- Partnership
- LLC
- S corporation
- C corporation
If you’re confused as to which business structure is right, answer the following questions:
- Do you plan on running the business by yourself or with others?
- What are your planned tax liabilities?
- Do you foresee making changes to your business in the future, such as by bringing on additional partners?
- Are you interested in a formal or informal business structure?
- What are your long-term goals for the business?
By answering these questions, among others, you’ll gain a better understanding of which business structure is right for you, your company and what you hope to accomplish in the future.
For example, if you’re running a one-person digital agency, you probably don’t have much interest in a formal business structure complete with board meetings and directors. Instead, your primary concerns are protecting your personal assets and minimizing your tax liabilities. This could lead you to form an LLC.
Conversely, if you’re launching a business with several partners that will serve clients across the globe, a C corporation may be the way to go. In addition to limited liability, it provides a variety of tax advantages, perpetual existence and unlimited potential to grow.
Can you change in the future?
It’s important to do your best to choose the right business structure the first time around, but that doesn’t mean you’re locked into it. You can and may need to change your structure in the future, such as if you decide to pivot the direction of your company.
For instance, you may start out as a sole proprietor, but soon find that putting your personal assets at risk is a mistake. This will lead you to consider another structure.
As long as you understand the types of business structures and the pros and cons of each one, you can make a final decision that will provide you and your company many benefits for years to come.
