Whether it’s a partnership, corporation or sole proprietorship, the structure of your business is crucial to its operations and future. It will determine your tax obligations, liability and legal compliance, all crucial to your business. Therefore, you ought to get it right from the word go and avoid problems that may affect your new venture.
There is no one-size-fits-all approach when choosing a business structure. Many variables are involved when making this important decision. Here is what you need to consider:
The liability of your business
Business liabilities can affect your personal assets unless you structure your business so that it is a separate legal entity of its own. Corporations have limited liability, unlike sole proprietorships or partnerships where the business owners are not legally separate from their businesses.
The resources involved
Usually, it is much cheaper to set up a sole proprietorship. All you have to do is register your name, begin operations, report your finances and pay your taxes as personal income. However, it’s a bit less straightforward for corporations and limited companies. More paperwork and government regulations such as reporting requirements are involved.
The future of your business
Do you want your business to continue when you are gone? Are you going to need additional capital along the way? The structure of your business may affect such plans.
For instance, if you aim to expand in the near future, the business structure may determine your ability to raise funds from investors or financial institutions. Usually raising funds for a sole proprietorship is harder than for a limited company or corporation.
Making the right call
You may be confused about the best structure for your new venture or are thinking of changing your current arrangement to suit your needs. Either way, having an informed evaluation of the legal and financial ramifications before making up your mind can help you make the right decision.