3 Factors to Consider Before Choosing a Business Structure

With spring in full swing, you’re bound and determined to finally launch your own business and start working for yourself. And more than that, you’re ready to make it official with the help of a law firm (for example, think “Your Last Name, Incorporated”).

The reality is, you’re not the only person interested in tapping into the benefits of entrepreneurship. Research shows that nearly 31 million small businesses have been set up in the United States.

The question is, how do you go about choosing a business structure?

Given that your business structure will be an important part of your venture, here’s a rundown on three factors to consider before choosing a business structure in 2021.

Let’s jump in!

Choosing a Business Structure That is Easy to Set Up

If you’re looking for the quickest and easiest-to-set-up legal structure for your business, you can’t go wrong with a sole proprietorship. A sole proprietorship also offers the benefit of not being as highly regulated as other structure options are.

If you’re going into business with a friend or family member, you can set up a partnership instead of a sole proprietorship. The sole difference between a sole proprietorship and a partnership is that the latter features a minimum of two owners.

One of the major drawbacks of sole proprietorships and partnerships, however, is that they do not provide liability protection. In other words, no separation exists between your personal liabilities and your business’s debts.

This means you may have to use your personal assets to cover any claims made against your business if you are a sole proprietor. In addition, if you have a partnership, creditors may go after you for the complete repayment of debts, not just 50% of these debts.

Liability

If liability protection is important to you, then it is in your best interest to set up a limited liability company, or LLC. This type of structure will prevent you from having to pay for any claim that has been made against your company.

The disadvantage of an LLC, however, is that if one of your company’s members leaves, then your LLC will cease to exist. To prevent this from happening, you should incorporate your business. This is because corporations are separate entities from their owners (also known as the shareholders). Corporations also offer the same level of liability protection that comes with LLCs.

Raising Capital

If you plan to raise funds from investors, such as venture capitalists, it is best to set up a corporation. This is because investors usually wish to be company shareholders so that they’ll have documented ownership interest.

Note that corporations offer various stock classes so that different investor levels can exist. For instance, some investors will be allowed to vote on major corporate issues.

How We Can Help

In addition to offering tips for choosing a business structure, we offer a wide range of other tips and advice for businesses of all sizes and industries.

For instance, through our site, you can learn about the 2021’s top outsourcing trends. In addition, we offer insights into the value of offering virtual events during the COVID-19 pandemic.

Take a peek at our site to learn more about how to boost your business’s bottom line in the months and years ahead.