Businesses can be categorized into different categories. The different business structures are a limited company, partnerships, sole proprietorship, and corporation. Each structure has its share of pros and cons. When starting a business, you need to consider its structure. That is because it is quite difficult to change the legal structure after registering the business. Therefore, you need to pay attention to the early stages of starting your business. These are some things you should consider when selecting your business structure.
Taxes
As the owner of an LLC business, you are still required to pay your taxes. That is because the profit you get is regarded to be a personal income. If you are starting a small business, you need to avoid double taxation. This is where the LLC structure benefits you as you cannot be taxed twice. You can use llc filing services to register your business. A corporation is required to publish its reports each year. If you get income from the corporation, you are required to pay taxes.
How Flexible It Is
Start by analyzing your business location and consider the type of structure that can make it grow. Look at your business plan and check whether the structure you choose suits your objectives. Remember that your business entity ought to offer adequate support for change and growth. Avoid structures that can hold your business back.
Level of Complexity
As far as complexity is concerned, there is nothing simpler as compared to a sole proprietorship. That is because you only need to register the business and start doing business. Also, taxes should be paid as part of your income tax. However, it is difficult to source funding. A partnership requires an agreement that defines the role of each partner. LLCs and corporations have complex reporting requirements.
Liability
Since corporations are considered to be their own entities, they come with a minimal level of personal liability. Thus, customers and creditors can sue the business, but cannot access your personal assets. The LLC provides similar protection but offers other tax benefits.
Amount of Money to Invest
If you want to seek additional funding from investors, venture capitalists, or banks, you should consider starting a corporation. That is because corporations easily qualify for funding than sole proprietorships. Also, you can sell shares to get extra funds for growth. For a sole proprietor, you need to source funds from personal accounts. LLC businesses face similar problems but can also tap into personal assets and loans.