Selecting the best business form for your business is an important question that should be carefully considered. The selection of a business form impacts liability, taxation, how much the business costs to run, control of the business, capitalization and other considerations as well which is why new business owners and entrepreneurs should not make the decision lightly.
The legal process provides resources, tools and options to help new business owners select the best business form that is right for their business in both the short term and the long term and can account for the business’s future needs and goals as it grows and expands. When considering business formation and planning, there are several different business forms to consider with different advantages and potential downsides as well.
A sole proprietorship is the simplest business form which gives the business owner the most control but also the greatest potential amount of personal liability. In addition, another business form to consider is a partnership which provides pass-through taxation like a sole proprietorship which is reported on the personal income tax return of the partners or sole proprietor. Partners are also personally liable unless a hybrid structure is selected.
Corporations provide protection from personal liability but can be costly to run and are oftentimes considered double taxed because the corporation’s profits are taxed in addition to the taxes paid by its owners and shareholders on their personal income tax returns. On the other hand, a limited liability company shields owners from personal liability and also provides tax and other advantages.
Selecting a business form is not a one-size-fits-all process and should take into account many factors discussed here to ensure the best decision is made. Thoroughly considering all options before selecting a business form can help put a new business on a path to succeed from the beginning.