Choosing the right legal structure for your company is one of the most important parts of the start-up process. This will affect the way that you pay taxes, how much you pay in taxes, your ability to raise money for your operations and how much paperwork you will be responsible for. It will also determine how much personal liability you’ll assume for the success or failure of this endeavor. When it comes to determining which entity or structure is right for your organization, it is important to note that this will depend heavily upon your current circumstances and your long-term goals. Thus, it is generally a good idea to consult with business lawyers and financial advisers before committing to a company structure.
Three Factors That You Must Consider
There are three factors that will help you determine which structure makes the most sense. These include taxes, bookkeeping and liability. You will need to determine how well you want to be insulated from personal liability. With the right structure, you can avoid personal liability from possible losses that the business might experience. It will then be necessary to determine how you can best minimize taxation and its impact on company profits and your own financial health. Finally, you must consider how the administrative aspects of operating your business and maintaining all necessary records will affect your bottom line. The business structure that you ultimately choose should be flexible enough for meeting your current and future needs.
Different Options In Business Entities
There are four primary business entities that company owners can choose from when structuring their operations. These include corporations, partnerships, limited liability companies (LLCs) and sole proprietorship. With sole proprietorship, you will be held personally liable for obligations pertaining to the finances of your business. Given the wealth of tax breaks that sole proprietors have access to, however, this remains the most popular business structure among small to medium-sized companies.
Partnerships are similar in structure to sole proprietorship, however, two or more people will be sharing financial and legal liability for the company. A corporation operates separate from the actual founders of the company and takes actions to preserve the well-being of the business. Incorporating a company is the best way to avoid personal liability, however, it will generally entail far higher taxation. A limited liability company offers business owners the ability to take advantage of a hybrid company structure that is part corporation and part partnership.
Irrespective of which option your choose, this is not a decision that you should make on your own. Reviewing each of these structures with legal and financial advisers will help you to avoid mistakes that you might regret in hindsight. No one business structure will work well for every organization and thus, you have to make sure that you are choosing the right entity for your business.
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