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Choosing the correct business structure

Starting a business involves making a number of important decisions. Front-facing choices like a name, logo and marketing strategy may seem like foundational decisions, but the first decision should determine the overall structure of your business. Whether you’re considering sole proprietorship or a type of corporation, it’s important your business structure fits with the needs and goals of the new venture

Elements of various structures

The three main factors to consider are:

  • Ownership style

  • Liability levels

  • Tax types

The needs of your business will vary, sometimes even from other businesses in the same industry. In considering the business structure that is right for a new startup venture, you may choose to start with the people involved.

Ownership

Are you an individual business owner, or are you going in with a partner or group? Single-person entities exist in nearly all business structure types, so don’t let size be the only dictating factor in deciding on a structure. A sole proprietorship is a structure of one person who takes on personal liability and uses a personal tax structure.

Liability

Liability is also an important consideration in establishing a new business, or in restructuring an existing venture. Some business owners take on personal liability in certain business structures, but limited liability companies (LLCs) and corporations alleviate personal liability from owners.

Insurance

Business owners also need to consider the type of insurance coverage needed for various business structures as well. Liability insurance policies are available for many business types and are worth discussing as your business plans move forward.

Taxes

Additionally, different business structures bring different tax obligations. Self-employment, corporate and personal taxes may apply depending on the structure. For those choosing a non-profit corporation structure, tax-exemptions come into play as well.

There are many decisions to make in the process of starting a new business. From the beginning, consider your structural and legal options in order to give your business the best foundation possible.


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