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Three issues to consider when picking a business structure

On Behalf of | Dec 9, 2020 | Business Litigation |

Starting a new business is exciting, especially when you have the right business team and product. Nevertheless, it is also crucial to pick the business structure that gives you the best opportunity for success, whether it is a sole proprietorship, partnership, limited liability company, corporation or cooperative.

This choice will have legal, financial and operational implications, so business owners would do well to consider the following three factors when making their decision.

  1. Industry: The type of industry your new endeavor falls in will help you determine which structure is most advantageous, especially regarding standard practices and the state’s requirements. For example, companies with a higher degree of risk may work better as a limited liability company (LLC) that limits the owner’s financial exposure, while a company involving professional services may operate best as a partnership where each partner brings something to the table.
  2. Taxes: Business owners must address all local, state and federal tax obligations. Picking the right structure not only limits personal liability, it also impacts how businesses will pay their taxes and how much they will owe. For example, sole proprietorships are less regulated and pay fewer taxes, but the owner is taxed personally because the owner and business are considered to be the same legal entity. This may not be desirable for some.
  3. Liability: Generally speaking, business owners will want some protection against liability. Each structure offers its protections. For example, an LLC or a corporation protects the owners from personally getting sued – only the business can be sued. Limited partnerships, on the other hand, have unlimited financial liability for a business’s debts.

You may need help making the right choice

Every new business’s circumstances are unique, but it helps to talk to others about a structure’s strengths and weaknesses. It may also be a good time to work with a business law attorney. They can help determine the right structure and guide business owners through all of the necessary paperwork required by federal, state and local agencies.