The important of selecting a business form

When starting a business, one of the most important decisions the entrepreneur will make it what business type they select. There are a variety of different business forms to consider when starting up a business and entrepreneurs should understand the benefits and implications of each.

Business formation can be a sometimes overlooked step in terms of importance during the overall business start-up process. The type of business form that is selected impacts the taxation of the business and its owners, paperwork and regulatory requirements, the ability of the business to raise money and the personal liability of the owners of the business. The most basic business form is a sole proprietorship. While sole proprietorships provide the most control for the business owner, they also carry the most liability for the business owner.

Another business type to consider is a partnership. Partnerships enjoy pass-through taxation so that both the partnership and individual partners are not taxed but only the individual partners are taxed. The partners, however, are exposed to personal liability. A corporation is another common business structure to consider. It is separate from the owners and provides the highest level of protection from liability. The corporate structure, however, requires the most paperwork and is considered double-taxed because the corporation pays taxes and then the shareholders pay personal taxes as well.

When selecting the best business form for a business venture, it is important to consider the immediate needs of the business as well as its future needs and how the business form selected can help the business grow and provide the flexibility the business needs to grow. Knowing the different options during the business formation process, and the up sides of each type, can help entrepreneurs through the business formation process.