Choosing a legal structure for your business is one of the most important decisions you’ll make. It impacts you and your company in many ways, ranging from how you’re taxed to the way you manage your business.
There is no right or wrong answer to the question of how you should organize your business. This depends on the type of business you’re launching, what you want to accomplish, and the risks that you’re most concerned about.
Fortunately, there is no shortage of options. Here are some to consider:
Sole proprietorship: Not only is this the easiest type of business to form, but it allows you to maintain 100% control. If you don’t register your activities as any specific type of business, it defaults to a sole proprietorship.
Partnership: If you’re going into business with a partner, this is often the simplest structure to form. You have two options: a limited liability partnership or a limited partnership.
Limited liability company: Known as an LLC, this is one of the most common forms of business structure. The primary benefit is the ability to separate your personal liability from your business. For instance, if your company has to file for bankruptcy, you don’t put your personal assets, such as your home, at risk.
Corporation: There are two common forms of corporations: S corp and C corp. With a C corp, you’re creating a legal entity that is separate from you and any other owners. An S corp is unique in the way that it prevents double taxation, which is a concern with C corps.
Along with the above, you may find that you want to create a non-profit organization. This is entirely different than choosing a business structure for a for-profit company.
As you take steps toward launching your company, learn as much as you can about the different types of business structures. Compare the pros and cons, ask questions of your tax professional and make sure you know exactly what you’re getting.
While you can always change your business structure in the future, it’s best to get it right the first time around. Doing so will save you time and money.