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Choosing the best business structure is critical for managing your personal liability as well as how your business will be taxed.
The next step in the long process of starting your own business is choosing the best business structure based on your vision, needs, and concerns. Every business structure has its own particular pros and cons to consider, and some are only an option in certain circumstances. You should do extensive research on each business structure and how they operate before committing to one.
Decide on a Business Structure
There are four main business structures to choose from.
Sole Proprietorship
A sole proprietorship is very easy to set up, and it equates the company and the business owner as one and the same. While it offers you complete control over your business, it does also put the liability of the business squarely on your shoulders. This means any issues or outstanding debts will be yours to deal with, so it’s not the right fit for everyone.
Partnership
A partnership is formed by two or more parties. The advantage this has over a sole proprietorship is that you have more available knowledge and resources with less personal responsibility when it comes to business debts. The downsides include the risk of an unreliable partner, splitting revenue, and relinquishing some control over the business.
LLC
A limited liability company (LLC) is one of the most popular business structures, especially for smaller businesses. These are formed by an individual or a group of individuals. Some significant advantages of this business structure include the separation of assets from the business, the limited liability if the business goes under, and the ability to choose the number of owners to determine how the business will be taxed. Unfortunately, this type of business is more expensive to get up and running, and changing the number of owners or passing ownership from one person to another can be a challenging process.
Corporation
A small corporation is known as an S-corp, while a large corporation is a C-corp. Corporations also offer limited personal liability, much like an LLC, but they are different due to the fact that they have an unlimited lifespan and can have an unlimited number of shareholders. The downsides of a corporation are that shareholders can exhibit a level of control over the company, they can be subject to double taxation, and they are significantly more expensive and difficult to set up than any other business structure.
Trust the Professionals at the Harding Group
Unlike other accounting firms, The Harding Group, located in Annapolis, MD, will never charge you for consultations and strive for open communication with our clients.
Are you interested in business advising, tax preparation, bookkeeping and accounting, payroll services, training + support for QuickBooks, or retirement planning? We have the necessary expertise and years of proven results to help.
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