Choosing the right business structure as an entrepreneur

On Behalf of | Jul 5, 2023 | Business Law

Getting an idea for a new business is only the very beginning of the entrepreneurial process. People also need to research and plan for their company’s launch, actually form the business and start operating the company. After someone has done the basic market research to establish that their concept is viable, they then start looking at how much investment it will take to start the company and also what kind of business they want to run. The business type or structure that an entrepreneur chooses can be as important as the business plan or model that they envision.

Some people start a sole proprietorship because they want to have absolute control over their business operations. Other people start a limited liability company (LLC) because they want to work with investors or shield themselves from some of the financial or operational risk involved with their business concept. These are some of the steps that entrepreneurs take when selecting the business structure that best suits their new company.

They look at their five-year plan

The planned growth of the business will have a major impact on the right business type. If the company will remain relatively small and only produce a limited amount of products or provide services locally, people may feel comfortable using a simpler business type like a sole proprietorship or partnership. When the company’s goals include rapid expansion, national distribution or involvement in a high-risk industry, a more formal business structure that offers more protection from liability, like an LLC or corporation, may be a better option.

They look at financial needs

Income and tax considerations could also influence the right business structure. An LLC taxed as a distinct entity might be a better option than a simple sole proprietorship for someone who anticipates making a comfortable living wage through their business, even if they anticipate very little risk or expansion, for example.

Although it is possible to change a business type after forming a company, there are costs, frustrating paperwork and possibly legal challenges involved in that process. Consulting with a business law attorney proactively may be a smart choice for entrepreneurs uncertain about choosing the best business structure and concerned about handling the paperwork involved with the business formation process.


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