How to choose a business structure: A step-by-step guide
Choosing the right business structure for your company can be quite difficult. If you are not careful, you could end up with a structure that is too complicated or doesn’t provide the legal protection that you need. That’s why it is important to take time when deciding on what type of business structure to choose and make sure all your bases are covered! This blog post will outline how to choose the best business structure for your business. Here are the steps.
Determine if you need a business structure
The first step in choosing a business structure is to determine if you even need one. If your company only has an individual owner, this could be all the protection that it needs. Even though you are “liable for debts incurred by the business,” as long as there is no other co-owner, then your personal assets should not be at risk.
If your company has more than one owner, then you will need to consider forming a business structure like an LLC or corporation if you want each partner only to be liable for their personal investment in the business and not have any liability from other partners as well. This is very important because it would be quite difficult to raise capital for your company if you had to guarantee it personally.
Choose the type of entity
After determining that you need a business structure, the next step is to choose what type of entity it will be. There are several different types of entities, and each has its own benefits and drawbacks depending on your needs for protection from liability or tax purposes. When choosing this, you should consult with an attorney because they can help explain all the options and help you make the best choice for your business.
For example, an LLC or limited liability company is great because it limits each owner’s personal financial liability to their investment in the business and allows them to separate their private assets from any money they put into the company if there are multiple owners. As seen at FinancePond, the cost of setting up an LLC company is relatively inexpensive and easy to maintain. However, the LLC does have restrictions on who can invest in it and how much to invest.
The corporation or C-corp is another great option with many of the same benefits as an LLC. It offers more protection against lawsuits because there are other employees involved than just owners. A shareholder could still be liable for anything above their investment if they are found personally liable for a lawsuit, but this is unlikely to happen.
Another option is an S-corp which is very similar to a C-corp but has pass-through tax treatment. This means that the profits are passed through to the shareholders, and they are taxed only once instead of at both levels like in an LLC or corporation.
Finally, there is also Sole Proprietorship if you want your business to be treated just like a regular person or the only owner. This is very easy to set up and maintain, but it offers no protection against lawsuits because nothing separates your personal assets from those of your business.
File your paperwork with the state and federal government
Now that you have decided on what type of entity your business will be, it’s time to file the paperwork with the state and federal governments. There are many websites where you can start this process online but make sure they are reputable sites. Otherwise, your application could get rejected for not having any legal value.
Obtain licenses or permits from any necessary governmental entities
There are many licenses and permits that your business will need to operate, depending on your industry. For example, there may be a license required by the state or federal government for certain jobs like doctors who have to obtain medical licenses from their states. These types of licenses usually require some kind of training, so make sure you have everything set up before you start hiring employees.
There are also many permits required for different types of businesses. For example, if you plan to have a retail store or sell items online, you will need an account with the IRS so that any sales taxes on your transactions can be collected and paid at tax time. You generally don’t want this information released by credit card companies without it first being collected by you because it could cause your business to lose money.
In conclusion, there are many different types of business structures and operating ideas that you can choose from. After deciding what type of entity you will be, the next step is to file your paperwork with state and federal governments to recognize it as a legal structure. Furthermore, government agencies will also likely require licenses depending on the industry where your business will operate. These types of licenses usually require some training or background check, so make sure you have everything set up before hiring employees.