Tips on Choosing the Right Business Structure
How to Choose the Right Business Structure
When you are establishing your business, a critical decision is that of choosing a business structure. This decision requires careful review as it impacts everything from your taxes to personal liability. The right business structure offers you the perfect balance between risk and benefits. Once registered, it may be difficult or costly for you to make any changes to the structure. This is why it is advisable to connect with a consultant offering business structuring services for the right guidance.
Common Business Structures
Sole Proprietorship
A sole proprietorship works best when there is a single owner. However, in this structure personal and business liabilities are not considered separate increasing one’s risk. A business structure consultant may advise this for low-risk start-ups.
Partnership
When there are two or more business owners, a type of partnership works best. This may be an LP (Limited Partnership) or LLP (Limited Liability Partnership).
Limited liability Company (LLC)
An LLC separates personal and business assets which means a business owner won’t be personally liable in case of business debts. This structure is commonly used by medium and large-scale businesses.
Corporation
A corporation is a separate legal entity from its owners. They are known as C corp and are often taxed twice, one at the time of profits and other at the time of dividend payment. Another type of corp is the S corp which is registered to avoid the double tax levied at C corps.
Choosing the Right Business Structure
Choosing the right business structure can be challenging. This decision does not just impact personal liability but every future decision of the business from raising capital to paying taxes. A business structure consultant will be able to identify your risk capacity, nature of business, and legal framework to suggest the best structure for you. Here, we take a look at the top parameters to decide a business structure.
Number of Owners
In case of a single business owner, a sole proprietorship may work well whereas a partnership may be advisable when there are multiple owners.
Tax Liabilities
Every structure has a different tax slab and liability. Some businesses registered as legal entities are taxed independently while a sole proprietorship may be taxed at a different slab. To know which best suits your business, consult with a firm known for its business structuring services.
Personal Risk
In case of a high-risk business, it would be better to pick a structure that separates personal and business liability such as an LLC. A low-risk start-up may benefit from the tax slab of a sole proprietorship without worrying about personal liability.
Fund-Raising Prospects
Businesses often need to borrow or raise funds to expand or continue their business operations. Companies registered as separate legal entities may find it easier to raise money at more favourable terms due to the clear structure.
Control
Most owners want to control all the critical business decisions. Structures such as a partnership allow this with the ability to choose the extent of control for each partner.
Conclusion
There is no single perfect choice of a business structure. Instead, it should be carefully decided based on the business activity, owners, and risk capabilities. Consultycs is a leading business structure consultant assisting entrepreneurs, small businesses, and business owners in setting up their businesses with all necessary regulations in place.
