While deciding to start a business of your own, you must be wondering about the type of business structure that you need to form. The structure of your business should be chosen entirely on your specific business needs. While creating a business structure, you have the basic types of entities to choose from. Each of them has its own pros and cons, based on the services and products that you sell, the finances of your business, and the total number of owners who own your business.
As a matter of fact, deciding to form a business is one of those interesting steps. But what should you do next? Should you simply operate as you are or should you incorporate? Whichever way it is, before you get your business running, here are few vital questions you need to ask.
#1: Is it necessary to safeguard your personal assets from the company liabilities?
If you’re still confused about whether to form a sole proprietorship or legal entity, the only issue that is worth considering is whether or not you have to safeguard your personal assets. Perhaps the only benefit behind forming a legal entity is that the owners of the corporation are shielded from business liabilities and commercial debt. There are professionals like doctors, lawyers and veterinarians who may not want to incorporate online or form a legal entity as their professional liability insurance coverage will protect them.
#2: Should you opt for LLC, S Corporation or C Corporation?
If you think it is necessary for you to protect yourself from the company liabilities, the next question is whether you should opt for an S Corporation or a C Corporation or a limited liability company (LLC). S-corps usually have similar restrictions as C-corps but they aren’t subject to double taxation. LLC owners, on the other hand, can elect either pass-through or double taxation. One more thing that you should note is that all the above mentioned business entities provide protection of liabilities and assets.
#3: Would you want versatility in payment structures and business management?
If the immediate answer is ‘yes’, you would want to be safeguarded from personal liability and LLC formation should be the most probably option. To their utmost contrast, an S-corp demands their shareholders to elect a team of directors who will be responsible for making all sorts of business decisions. The formalities associated with an S-corp might be advantageous on taxes related to Social Security, unemployment taxes and Medicare taxes; it is still recommended that you speak with a professional.
While deciding the entity which you need to choose for your business, the decision will depend on the few circumstances of the owners of the business and the kind of business which has to be formed. In case you have more doubts to be cleared, you can seek help of a professional before making any final decision. Also consider the pros and cons of each of the business structure before opting for any of them.