When you set up your business, one of the first things you have to do is choose a business structure. Each structure has its own benefits and limitations, so it is an important decision that you need to think about. It may also help to seek advice from a qualified business lawyer. Here is what you need to know about picking the perfect business structure from the team at James C. Provenza & Associates, P.C.
Why Business Structure Matters
The structure of your business can make a big difference in how your company operates. The structure provides certain benefits, such as tax incentives. However, there are certain limitations that you may face, including government regulations and restrictions on your business based on what it does. This is something that you have to take into account when setting up your business as it can position your business for success or failure later on.
Types of Business Structures
There are several common business structures to choose from. They include:
Sole Proprietorship
A sole proprietorship is a business that is directly tied to the person who founded it. In essence, the founder is the business. This is the best option for a small, one-person organization. The downside to this is that the person is liable for business issues, such as the business getting sued. Also, the other issue is how it is taxed. Sole proprietors are double taxed (once for their business income and once for their personal income).
Limited Liability Partnership
A Limited Liability Partnership is a collaboration between two or more partners who want to start a business together. It spreads the liability of the business between the partners so that no one faces 100% responsibility for the business.
LLPs are a great idea when you need a partner for your business. However, that also means that you have to be able to work together and resolve issues between the partners. Otherwise, you can experience problems with management.
Corporations
There are several types of corporations to choose from. Corporations fully separate the business from the founders so that it can function without them. This gives you the most protection from business liability. It also lets the business outlive the founder whereas the other structures are tied to the founders or owners directly.
However, corporations require more detailed management and stricter government oversight. This is especially true if you switch to a specialty corporation, such as an S Corp or 503(C) non-profit. It’s a trade-off between having total control or having the highest level of personal protection from business risks.
Which Business Structure Should You Choose?
Ultimately, the choice of which business structure comes down to your specific goals and needs. Before making a decision, discuss your situation with a business lawyer for guidance. Contact James C. Provenza & Associates, P.C. at (847) 729-3939 or fill out our online form for a consultation to help start your business.
