This blog recently took a look at the different business structures and the importance of selecting the best one for your business. There are a few considerations to take into account during the business formation process and this blog will help entrepreneurs and business owners take a look at what those considerations are and answer questions they may have.
A business start-up should consider both its current needs and its potential needs for the future when contemplating business formation. To begin with, the entrepreneur should consider the cost of the business they are setting up and the costs associated with maintaining that business structure. Some business types, such as a corporation, are more costly to run due to paperwork, filing and regulatory requirements. In addition, operation of a corporation can be more complicated and costlier than, say, a sole proprietorship or partnership for instance.
Taxation can also be higher for a corporation, as corporations are sometimes considered double taxed because the profits of the corporation are taxed and those same proceeds are taxed on the personal tax returns of the shareholders. One possible advantage of a corporation, however, is less risk for the business owners or shareholders. Sole proprietorships and partnerships can carry significant liability for business owners, while corporations provide more protections from personal liability. The type of business form selected can also impact the ability to raise money, which can be more challenging for a sole proprietorship, and the process of terminating or selling the business.
It is important for an entrepreneur to evaluate the costs, operational considerations, taxation, liability, capitalization, as well as selling or ending the business and how those concerns impact the selection of the best business form for the venture. This will help them determine the best fit for their business when deciding on a business form for the growth and success of their business.