When setting up a business, it is important to know to decide on the best business form. Selecting the best business form has implications for the present and future growth of the business. It is important to know how to carefully decide on the best option from those available.
- Research the different business forms: New business owners should research the different types of business forms. There are several to choose from including a sole proprietorship, partnership, limited liability company (LLC) or corporation. In addition, there may be variations on the different types of business forms available.
- Determine liability the business owner wants for the business: A sole proprietor is financially liable for the business. On the other hand, a limited liability company or a corporation is a separate legal entity and the owners are not personally liable for the business.
- Decide on the number of owners: The best option may depend on the number of owners of the business, as well as other factors. A sole proprietorship only accommodates one owner, while other business forms, such as an LLC or corporation can accommodate multiple owners.
- Choose a tax structure: The business owner should decide how they want to be taxed. Sole proprietor is taxed for their business on their personal tax return. Other business forms are taxed as a separate legal entity which may lead to double taxation in some circumstances.
- Consider the amount of recordkeeping the business owner wants to do: Recordkeeping of some sort is an essential part of a business but certain business forms may require the business owner to keep certain records. Business structures like corporations may require more recordkeeping than other business structures such as sole proprietorships.
Business law can help guide business owners when they are selecting the best business form for their business. They are essential tools to be familiar with to help a business get up and running.