One of the most important decisions you can make when you start a business is selecting a business structure. The options can seem confusing and the temptation may be to rush the decision and get to work, but ultimately the choice you make will impact you and your business in crucial ways – from taxes and paperwork to taking on partners and putting your personal assets at risk.
Among the most frequently used structures that new businesses choose are sole proprietorships, partnerships, limited liability companies, and corporations. As part of Fryed Egg Marketing’s ongoing look at starting a business, here are some things to keep in mind when choosing a structure for your new business.
Make it a priority
You cannot register your business in your home state without choosing a business structure first. That means you will need to carefully consider your options early in the development of your business and choose a structure that will be the best fit for your operation both in the short-term and the long-term. In many instances, you will need to get a tax ID number as part of the registration process. You are not simply stuck with whatever structure that you choose. However, changing structures down the road could create challenges, including leading to tax consequences or requiring a complex dissolution as part of the process. Getting it right the first time is preferred.
As with most decisions related to starting a business, it’s best not to go it alone. You may be able to find lots of helpful guidance and background through online resources, such as the Small Business Administration, but there is no substitute to consulting with experts who can not only answer your questions but ask you pertinent questions that will help you better consider all the angles of your decision. Business counselors (such as SCORE), attorneys and accountants are all among those who can help ensure you make a measured, thoroughly considered choice. Attorneys and accountants may cost money, but they also can save a lot more of it and their guidance will be needed throughout the life of your business. Business owners who have been through the process themselves also can be crucial confidantes, not only taking you through their decision-making process but sharing how that decision has affected their business in the years since they made it.
You want to do all that you can to make a decision that is tailored to your unique needs and the future life of your business. One of the first considerations is your tax liability – how much you will pay and how you will pay it. For instance, more tax options are available to corporations than to proprietorships or partnerships. Your structure decision can help you avoid double taxation and even in some cases reduce your personal tax liability based on business losses – a particularly helpful benefit in a company’s early years. Another critical factor is if you want to choose a structure that protects your personal assets in the case of a lawsuit or judgment against your business. For owners of businesses in certain fields, in fact, this is their top priority – with good reason. Your business structure also will affect your administrative costs. For instance, conducting business as a corporation carries record-keeping and paperwork expenses that may not be worth a corporation’s tax benefits for everyone. Other considerations that could weigh heavily on your decision are what should happen to the business if the owner or owners retire and whether the owners will be interested in taking on additional partners as the business grows and evolves.
At Fryed Egg, we help new and emerging organizations find their footing and discover who they are. If you want to see if Fryed Egg is the right agency for your marketing needs, contact us at (813) 478-0494 or [email protected] or visit www.fryedegg.com.