Entity Formation | Form Your Business in the United States

Things to Consider When Choosing the Right Type of Business Structure

Laying down the organization of your venture has its share of pros and cons. Here are some points to ponder on when discerning the types of business structures that can best suit your needs.

What are the costs for the types of business structures?

The most viable and cost-efficient could be a sole proprietorship or a general partnership. It might cost you more for a limited partnership and a limited liability company. The most expensive is, of course, setting up a corporation.

Will it be an easy or difficult process to set up these types of business structures?

By just opening a business checking account, you might already get your sole proprietorship. A partnership agreement must be written up for those entering into a general partnership. There are more documentation and work involved in a limited partnership, limited liability company, and a corporation. These entities must strictly adhere to state requirements or forfeit the advantages for that particular business entity.

What are the possible termination reasons for the business?

Death can automatically terminate the business entity. This may include the withdrawal of a partner or even divorce. There may be a state-mandated period of time for the business to exist.

What are the privacy issues linked to such structures?

Corporation, especially if publicly listed, are required to submit reports and necessary financial information to the state. A limited liability company or a limited partnership may submit fewer data. There’s more privacy granted to sole proprietorships and general partnerships.

What are the risks involved?

Sole proprietorships and general partnerships are liable for any business debts and obligations. The risk is more spread out with the other structures.

What grants more operational control?

The greatest degree of potential risk comes with the greatest degree of control through a sole proprietorship.

What is the necessary capital?

If a business is undercapitalized, there may be a loss of protection provided by that business entity. Some other business structures may have an easier time in raising capital when needed.

What are the types of business structures that are easy to sell?

The sole proprietor of a business has the authority to sell assets connected to the business. Those in a limited liability company may need to get clearance and approval from the listed partners or members.

What are the accompanying state taxes?

Please verify with a tax consultant what taxes will be incurred by a business entity. Limited liability companies may be subject to such tax levies.

What are the possibilities for expansion?

The types of business structures available determine the size of your organization. As your business grows, there will be advantages and disadvantages to think about when taking in additional capital from partners or setting up a corporation altogether.

So, by going through these questions, you might get a better understanding of which structure best suits you. It may all start as a single proprietorship, but as the business expands, the additional support from going into a bigger business structure may be the way to go.


Leave a Reply

Your email address will not be published. Required fields are marked *