Are you planning to start your own business? If so, something you must consider is the corporate structure. Will you function as a corporation, LLC, or something else? Some tips to help you make this important decision can be found below.
Consider Your Tax Situation
The way you set up your business will impact the way it is taxed. For example, if you want the business to operate as a sole proprietorship, you will be the only owner. From a tax standpoint, there’s no distinction between your business and personal income, which means you report the profits and losses for the business on your personal tax return.
Another option is to find a partner and choose the corporate partnership structure. You still must report your losses and earnings but will split the tax burden and profits with the other partners. Similar to a sole proprietorship, if you are part of a partnership, you will not have to deal with double taxation, which is a problem corporations may face when the company is taxed and shareholders pay taxes for the dividends they receive.
Along with the future tax bill, you should also consider liability before choosing a corporate structure. For example, a sole proprietorship may not be that expensive to form, but you are personally responsible for the losses your business incurs. If you have unpaid debts, then the creditor may use your car or home to cover them.
If you want to keep your business separate from your personal finances, it’s best to choose a corporation or LLC. In either case, only your business assets will be at risk if your company fails or if there is a lawsuit.
Raising money for a corporation is often easier than generating enough capital to launch a sole venture. Few investors are willing to put their money into a sole proprietorship; however, you can take advantage of funding from venture capitalists and find other investment opportunities as a corporation. You can also raise funds when you sell shares of your stock.
Choosing the Right Corporate Structure
If you want to ensure you have selected the right corporate structure for your business, start with the information above. It may also help to speak to an accountant or business attorney who can provide you with more insight and information about this important decision. Being informed is the best way to ensure you choose the right structure for your business venture.