The legal structure of your business shapes your professional journey. While you can change your entity in the future, it is best to get it right the first time to avoid legal and financial complications. There are various structures, and each comes with its benefits and drawbacks. The one you choose directly impacts the daily operations, control, taxes and liability of your company.
Choosing the right structure comes down to figuring out which one helps you achieve your goals. Here is an overview of the most common entities to help you narrow down your choice.
Sole proprietorship
If you are looking to run your business from home as your own boss, you may consider starting out as a sole proprietor. This entity is best for its simplicity of formation and operation. However, there is no protection of your personal assets, so if your company faces legal trouble down the road, your own money and property may be at stake.
Partnership
You may want to start a partnership if at least one other person is going to own the company. This structure allows several people to share decision-making power, profits and losses. Similarly to sole proprietorships, liability may be an issue as your company grows.
Limited liability company
An LLC is the middle-ground between a partnership and a corporation. It provides owners and partners with liability protection with the flexibility and tax benefits of a partnership. Profits and losses are not subject to corporate taxes in most cases.
Corporation
If you want your business to be distinctly separate from its owners, you may want to create a corporation. A corporation stands completely on its own with its own legal rights and liability. The most common types of corporations are C-corps and S-corps.
Ultimately, you should make a decision based on what entity will provide your company with the most advantages for growth and protection.
