Before your open your business to the outside world, it’s critical to take a number of key steps to ensure that you’ve laid a solid foundation. This includes choosing the right business structure.
On the plus side, there are many types of structures to choose from, which allows you to find the one that’s perfect for you. However, it does take some time to learn more about the pros and cons of each one.
Different types of structures
Generally speaking, your options include:
- Limited liability companies
- General partnerships
- Limited partnerships
- Limited liability partnerships
- Sole proprietorships
Do not make a decision based on what others in your industry are doing. Also, don’t make your final choice until you understand the finer details of each option.
What to ask yourself
Here are some questions you can answer to help you decide on a business structure:
- How simple is it to form?
- What steps must you take to maintain good standing?
- What are the benefits from a tax perspective?
- Are there any tax consequences associated with the business structure?
- How many partners will you have? Or are you starting a business on your own?
- How easy is it to terminate?
For example, a limited liability company (LLC) is one of the easier structures to form. This is particularly true if you will be the only member of the organization.
The primary benefit of an LLC is the manner in which it protects you from personal liability. For example, if your company faces a lawsuit or bankruptcy in the future, you do not have to worry about losing your personal assets such as your bank accounts and family home.
Regardless of which business structure you choose, be sure to understand the impact it will have on your organization now and in the future. While you can always change down the road, it’s better to make the right choice up front. Doing so will save you a lot of time, money and hassle.
Since there’s no right or wrong answer as to which business structure is best, it’s critical to consider all your options, answer essential questions and only make a decision when you’re 100% confident in the direction you’re headed.