Deciding to start a business is likely the biggest financial choice you will ever make. The money involved and the potential long-term effects of this endeavor are often more significant than purchasing a home. Knowing this, you want to make a decision you feel comfortable with, starting with the type of business form under which you’ll operate and which you will follow. The main types of businesses are as follows: sole proprietorship, partnership, corporation, cooperative and limited liability company.
What Is the Size of the Business?
Your business structure will depend largely on the size of your organization. If you are starting a small business, a sole proprietorship may be the best way to go. This will give you, as the owner, complete control over the organization. It is also the fastest and easiest structure to set up, requiring less paperwork and not as much money. Small businesses often use this method. If your company is medium-sized or large, it may be better to form a corporation or partnership.
Who Is Involved With You?
Are you starting your business on your own, or do you plan on having one or more partners share ownership? There are pros and cons to both approaches, but knowing the right form is crucial. If you will have other owners sharing liability and obligations, a partnership makes the most sense. Every member of the partnership will share in the profits and losses of the company. Just make sure you select partners you trust and people with whom you share a common vision and goals.
You should be aware of the tax implications of your business. Corporations offer more tax options than other forms of business. In a sole proprietorship, you would be personally liable for the business, which would affect your personal taxes.
The Costs to Get Started
If you have a deep pool of financial resources, you should be in good shape to form a corporation. The costs to legally form such an organization are much greater than that of other business types. On the other hand, if you have limited capital, be wary of spending too much on forming your business.
Consider these factors as you form your business. A business lawyer can advise you on what makes the most sense based on your goals and your situation.