One important thing to do when starting a business is to decide what type of structure you’d like to use and what type of business entity you want to own. There are many different options, and they can all have an impact on how that business runs and what steps you need to take.
Every situation is unique, so it’s impossible to say that one business structure is the best or not. It all depends on exactly what your goals are for the company. But let’s take a look at some of the most common structures and why people use them.
Perhaps most common is an LLC, or a limited liability company. If your company owes a significant financial debt, it may go bankrupt. With an LLC, only the company itself is liable. For example, if your company was sued and you didn’t have the money to pay, the company might have to declare Chapter 7. But you would not have to sell your personal home or dip into your savings to pay off that debt.
A sole proprietorship
Someone who is working by themselves may also choose to just start a sole proprietorship. This means that they are doing business under their own name. This is easy and simple, but it does open up the risk of personal liability. As such, some business owners start with a sole proprietorship and then decide that they need to start an LLC when the financial risks begin to grow.
A corporate structure
There are also cases where a corporate structure is going to be best. Examples include an S corporation or C corporation, which may have tax benefits. Some people also start partnerships, which means that they need to draft a partnership agreement. All of these options are much different than a sole proprietorship or even a personally-owned LLC because you have to determine how you’re going to work with other people and the structure that the business is going to have.
Considering your options
These are just some of the options that you have, and you can see how they all provide different benefits. Make sure that you take the time to consider them all carefully before starting your business.