Choosing a business form is an important first step to any business venture. It is important that the best business form for the venture is chosen with care and thoughtfully selected because it impacts many parts of the business and it starts up and as it begins to grow down the road.
Business law is an important area of the law that can help entrepreneurs and business owners through their concerns as they navigate the start and growth of their business. There are several different business forms to consider and a selection of the best one for the business should include start-up and maintenance costs; taxation; structure and control of the business; and personal liability concerns.
Business forms that entrepreneurs and business owners may want to consider include:
- Sole proprietorship: A sole proprietorship is the simplest business form and allows the business owner the greatest amount of control over their business. Taxation is also accomplished through the business owner’s personal tax return. It provides, however, no protection against personal liability for the business owner.
- Partnership: A partnership shares many similarities with a sole proprietorship in terms of taxation and lack of personal liability protection, however, it involves a partnership agreement and multiple business owners which can impact control of the business and ending the business.
- Corporation: Corporations provide personal liability protections for business owners, however, they can also be costly to run and have many regulations and requirements surrounding them. In addition, they are sometimes considered double taxed because the corporation pays taxes, as do the shareholders on their personal tax returns.
- Limited Liability Company: A limited liability companies provide personal liability protection for the business owner but also allow for the option of pass-through taxation on the business owner’s personal tax return.
There is a lot to consider when turning a dream into a reality and starting your own business. Getting a good start includes determining the best business plan for your business.