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How to Choose a Business Structure

If you want to choose a business structure for the business, you must do it in advance. This is vital especially when you’re applying for a business license and creating a business plan.

There are three choices and aside from that, there are hybrid structures as well. Make an informed decision now.

Choosing a Business Structure

When starting a new business, it is very important that you decide on the right business structure. By the time you register the business, you should already have a choice. You need to be aware that businesses pay taxes and the structure can affect this, as well as the capital and personal liability. The appropriate structure for a business will vary and will depend on individual circumstances. It would be best if you consult with a business expert so that you can receive advice. Look into the advantages and disadvantages of each business structure before you decide.

You have three choices – sole proprietorship, partnership, and corporation; the easiest structure to start is the sole proprietorship. The owner will have full control on the business but you should be aware that all financial obligations will be shouldered by you as well, including personal liabilities. The second option is partnership. This structure is made up of two or more persons who agree to invest on the business and share the profits/losses. Taxes will past on to the individual tax returns of the partners. When it comes to liabilities, all partners will be liable and will share the financial obligations.

About the Corporation

The third option is the corporation. This is a legal entity that is separate from the owners. The entity is subject to taxes and can be held liable for different actions. With this type of structure, a hefty amount of capital is needed. Another drawback is that the corporation is subject to double taxation. You should be aware that you can start an S or a C corporation. There are still hybrid structures that you should know like LLP or limited liability partnership and LLC or Limited Liability Corporation. You must identify the pros and cons and gather enough information about the structure that you want to pick.

It can be hard to choose at first but with adequate background and knowledge, you can make an informed decision. What type of business are you planning to start? If it’s a home based business, you can settle with the sole proprietorship but if you need to share the capital investment with others, you can opt for the partnership. This is your chance to have a new business, and all aspects should be addressed cautiously. Find a reputed expert in your area and schedule for an appointment. When you decide to get a business license, you should have decided on the business structure and the name of the business.

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