When you are looking to start a new business there are many important things to consider but none more important than deciding on the type of legal business structure to utilize for your company. Each business structure creates a legal entity around the type of business you would like to conduct.
They vary from the very simple sole proprietorship to the more complicated S Corporation and in between there are options created more recently like an LLC that gives great flexibility and protection for small businesses.
The key is to find the one that perfectly accommodates what your business needs. Here are the key things to consider when selecting a business structure for your business.
Have you thought about the future of your business?
Most companies when they start out may do a three or longer year plan but they actually only have a vision for the first year or maybe two. But you have to really think through where you company will start and where it is likely heading in order to help you to determine the right business structure for your company. Ideally and to avoid any issues or costs down the line, you need to align the right structure with your business plans. In terms of ease of setup, and LLC may be the best choice. There is now online LLC filing in most states and you can get this done at https://www.govdocfiling.com/. The process is quick and easy.
How much liability protection do you need?
All legal business structure offer a measure of liability protection but some do a better job of it, and this may be critical, depending on what your business does. Although S and C corporations offer the same type of protection, with an LLC, you get the tax benefits of a sole proprietorship type of structure.
What tax structure would you like?
For most small businesses an LLC is perhaps the wisest choice in terms of taxes. With an LLC structure, owner’s profits are treated as personal income taxed this way at the end of the year. This is critical because when your business is small, you want to circumvent double taxation, meaning being taxed as a company and an individual. An LLC helps to eliminate this concern. Owners of partnerships are also taxed as individuals but again there are potential liability protection issues with this structure so make sure this type of structure fits your precise needs. S and Co corporations must file corporate taxes each year on profits earned by the corporation. You as an employee of the corporation will also have to file individually and pay personal taxes.
Do you want to have the highest level of control of the company?
Control is always an important issue at a company. With a corporation you will look to have a board of directors who will oversee the managers of the company. You may not bring on a board initially but as you grow this will become a requirement, particularly if you have investors. You will also have to keep minutes and logs of all major decisions related to the company. If you seek more control an LLC again is the best choice because you will have primary control over the business and the decisions made for it.
There are other issues to consider but these are the most important when you are thinking through the legal business structure to adopt for your business.