One of the most important decisions you must make as an aspiring business owner is picking the ideal legal structure for your business. Should you start off small under a sole proprietorship, partner with a close friend, or form a limited company?
While it all depends on your individual needs and circumstances, here are three key issues you need to have at the back of your mind.
1. Your liability
The legal structure of your business can protect your personal assets from business creditors. For instance, while creditors can repossess your assets to recover a debt owed by your sole proprietorship business, a limited liability company or a corporation can protect your personal assets since it is considered a separate legal entity.
Depending on the structure of your business, different tax regimes may apply. A sole proprietorship’s income is considered personal income, while income from a C corporation is considered business income.
The choice of your business structure could affect its tax obligations since the taxman treats business and personal income differently.
3. Control of the business
If you want total control of your business venture and its operations, you need to pick the legal structure that allows you to do so. It may be impossible to have an unfettered say with a corporation since you have to go through the board of directors, unlike with a sole venture.
Making the right call
There is a lot that goes into choosing the ideal business structure. Therefore, should you need help in picking a business structure or when altering your existing one, it is necessary to seek informed insights on the pros and cons of each option before making up your mind. It could give your business an edge and protect your interests.