Running your own business is always a task. You have to start from zero and carve your way up to the highest peak. But the process of establishing the proper foundation that will hold the system of your business, in the long run, is very important.
Importance of a Business Structure
Your chosen legal business structure will have impactful consequences on various factors, like business taxation, liabilities, and access to funding and capital. And depending on your business formation the structure will vary. Whether your company is a business sole proprietor, partnership venture, corporation, or limited liability company (LLC) the following structure will vary. But despite the variations your business can provide numerous advantages:
• Secure funding.
• Transferable Business Ownership.
• Personal Asset Security.
• Limited Liability.
• Tax savings Prospects.
• Distinct Credit rating.
• Earlier Retirement.
In the following portion, you will learn that each business structure offers unique ownership, legal, funding, and taxation considerations.
1. Sole Proprietorship
This business structure needs no legal structure from the company and the person who owns and runs the business. This is a straightforward option that’s easy to establish and maintain.
Pros:
• Complete control over your business.
• Flexibility in business structure in the future.
• Lower taxes.
Cons:
• Unlimited personal liabilities.
2. Partnership Ventures
There are two types of Partnership businesses, Limited partnership (LP) and General partnership (GP). In this venture, each partner or owner contributes to the business via capital, skill, labor, or property. And the profit is shared between the partners.
Limited partnership (LP) means that specific partners will be liable for personal negligence.
General partnership (GP) means dividing the business either evenly or into predetermined percentages that have been agreed upon and documented beforehand by the partners or owners of the company.
Pros:
• Shared responsibilities.
• Uncomplicated setup and sorted management.
Cons:
• Partner conflicts.
• Personal Liabilities.
3. Corporation
A corporation separates the business entity from an individual or group of people. It protects personal liability and secures business ownership. And in this structure business ownership can be easily transferred.
Pros:
• Sell shares to increase capital.
• Protect personal property.
Cons:
• It may be a small but personal liability is still present in this business structure.
• It requires more effort to set this business up and maintain it in the long run.
4. Limited Liability Company (LLC)
LLC is a perfect blend of partnership ease and liability-protected personal liability option corporate. This business structure offers a middle ground between the two business structures.
Pros:
• Personal protection.
• Simple Management.
Cons:
• Limited availability is its major disadvantage because this option is unavailable for every business domain.
• Taxes are high in this structure.
How to Choose a Business Structure?
A proper structure will bring you maximum advantages. Before selecting your business structure consider the following 4 aspects.
Personal Liabilities – Business incorporation is a separate unit from your personal belongings. Some businesses might reduce personal risks but it is always wiser to make sure that you choose a business structure that offers stronger protection.
Bringing Partners in – If you are willing to bring partners in then choose a business structure that supports this choice.
Employee Hiring Options – Sole proprietors can’t hire employees; if you are hiring employees then you should make the structure in consideration of that.
Business Funding – Even if you spend all of your savings and earnings running a business will require more investments. You need to build credit and a financial history that will encourage potential investors to invest in your business.
Incorporating your business will lead to several advantages and if you are willing to protect your assets then choosing the correct business structure is very essential. In some instances, you will have the opportunity to minimize your income tax and run your legitimate enterprise successfully.
