One of the most critical decisions to make when starting a new business, is choosing the right business structure. There’s a lot of jargon out there that can be quite confusing when it comes to choosing a business structure.
“The business structure you choose influences everything from day-to-day operations, to taxes, to how much of your personal assets are at risk. You should choose a business structure that gives you the right balance of legal protections and benefits.” – sba.gov
With so much riding on which structure you choose, it’s easy to understand the importance of making the right choice. To ensure you make the best decision for your business, there are a few things to keep in mind:
Understand the Differences
First and foremost, you will need to understand the differences between each business structure. You can’t very well decide one or the other is better if you don’t know what each offers or requires.
Should you file as a Limited Liability Company (LLC)? A Non-Profit? A Corporation? What about C-Corp, S-Corp, or B-Corp? How do you know which structure is right?
Start by educating yourself on the details of the most widely-used legal business structures. Sites such as the U.S. Small Business Administration (sba.gov) or the IRS (irs.gov) can offer helpful definitions of each structure.
Identify Your Options
Once you have a basic understanding of the typical structures available to you, you can begin comparing them. Some of the choices will automatically be eliminated (for example – if you’re not forming a business with a partner, you can obviously rule out filing as a Partnership), but others will need a closer look.
Create a small list of the structures which are not ruled out by basic criteria. Even if you may not initially consider one, if your business qualifies, add it to the list for now.
Create a Short List
From here, you can begin to compare and eliminate options. Do this by adding criteria, pros and cons, regulations, and whatever else you discover in your research under each structure on your list. By short-listing the highlights, you will be able to do a side-by-side comparison later on which will help you make the best possible decision for your business.
Be sure to include details in your comparison list such as tax liabilities, company control levels, legal liabilities, and any other form of protection you may need down the road. This will help you to weigh the risk-factors of each structure in terms of protecting your business (and your personal assets) in any future unforeseen issues.
Speak with Established Owners
Another thing to consider when deciding the right structure for your company is the invaluable insight from others who have already gone through it. Speaking with other local business owners, colleagues from a coworking space, or friends and family who have entrepreneurial experience can give you an inside look at things you may not think of by simply doing online searches.
In short, such an important decision is best made with all of the facts and details in mind. The only way to do that is to be thorough in your research and seek the advice of others who have been through the process.