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How to choose a business form

On Behalf of | Jun 27, 2019 | Uncategorized |

You’ve had the dream to launch your own business for years. Finally, you are ready to take that next step, but you quickly realize the amount of work it will take in the beginning. First, before you start designing a website, hiring any employees or find an office or storefront to rent, you’ll need to decide what type of business to form.

When legally establishing your business, you will have three structure choices: a sole proprietorship, a limited liability corporation (LLC) or a corporation. Think about your business goals before you choose, as well as what level of financial risk you are comfortable with.

Sole proprietorship

If you are going to be a one-person consulting firm or run a side business selling your photo and design work on Etsy, a sole proprietorship may be the best fit. It’s very simple to set up legally and you report your income and losses on your individual tax forms. You solely are responsible for your business’ financial obligations.


However, many small business owners establish an LLC because it offers more protection. If you want to protect your personal assets from your businesses’ debts, this is the choice. For example, if you are going to run your own food truck, if someone gets severely ill from eating one of your lobster rolls, you want to protect your personal assets from any financial risks.

Also, if you will be hiring employees, co-owning the business with a friend or family member, an LLC will protect all parties involved. For example, if your brother ends up getting divorced, the business finances will not take a hit because of his divorce settlement.

LLCs don’t require owners to pay corporate taxes, which is part of the reason why many small business owners see them as the perfect balance between operating as a sole proprietorship or a corporation.


Corporations have more government regulations when it comes to taxes and can have an infinite lifespan. They are separate entities from their owners. However, it’s more expensive to form a corporation and requires more record keeping.

No matter which type of business structure you decide on, consult an experienced attorney first. Business law can be very complicated, especially if you want to have a business partner or run a family business. You want to make sure all parties are protected before your business officially opens or has its first clients.