When you are starting a new business, the first thing you need to do is to decide what kind of business entity you want. Will you structure your company into an LLC? Do you want to have a corporation? Would a sole proprietorship be right for you?
These are important questions to ask and investigate, because the answers may help you select the correct business structure for your business at this time.
Choosing the right business structure
Choosing the right business structure is a significant task. Depending on the type of structure you choose, the way your business, or you, are taxed may change. Your risk level may vary, too. For instance, with a sole proprietorship, you’ll pay your taxes and be liable for any damages caused by your business. You could be directly sued by others as well.
This isn’t the same for other business structures. For example, a corporation is a separate entity, so if someone sues it, they aren’t suing you directly. If it goes bankrupt, then your personal income and assets are protected.
What kinds of business structures can you choose?
There are a few different business structures that you could choose. Some include:
- A sole proprietorship, in which a single person is liable for the business and operates it. This avoids come reporting and registration requirements
- Corporations, in which the owner is shielded from liability but there is a risk of double taxation
- Limited liability companies, or LLCs, in which owners are shielded from liability caused by company debts or lawsuits against the company
These aren’t the only options for your business structure, but they are among the most common.
Do you have to choose one structure and stay with it permanently?
No. You can select a single structure and change it later if you wish. For example, if you start out as a sole proprietor, you can later adjust your business into an LLC. Your attorney can help you register appropriately and to get the right licenses and permits if you want to move into a different business structure after some time or once your business begins to grow.
