Deciding which business form to select when starting up a business is a bug commitment. New business owners should know what to base that decision on and how to evaluate which business form is best for them during the business formation process.
Ownership and control of the business
One way to evaluate business form selection is who will own the business and how will it be controlled. Sole proprietorships are owned by one business owner, while the other business forms, including partnerships, limited liability companies (LLC) and corporations are typically owned by one or more business owners.
Taxation of the business
Another consideration to take into account when selecting a business form is how the business will be taxed. Sole proprietorships and partnerships are taxed on the business owner’s personal tax returns. Corporations pay corporate tax and LLCs can choose how they want to be taxed. Some corporate structure options may also provide different taxation options.
Personal liability of owners or members of business
Another way to evaluate which business form is based is based on the personal liability of the members. There is contrast between business forms concerning liability. Sole proprietors and partners have unlimited personal liability. LLCs and corporations provide complete liability protection for members and owners on the other hand.
Cost of forming the business
Last but not the least, when making a business form selection, it is important to evaluate how costly the business form is to own and operate which can be influenced by how heavily it is regulated. By taking all of these factors into account, the new business owner can evaluate what is important to them and make the best, informed, business form decision for them.