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Determining which business structure will work best for your new venture

by | Nov 5, 2023 | Business & Commercial Law

Someone who is hoping to start a business needs more than just a great idea. They also need the right protections. Starting a formal business is crucial for both the public perception of the business as a professional one and the protection of an entrepreneur’s interests.

Those starting companies have a variety of options available, from an S corporation to a sole proprietorship. There are limited liability companies (LLCs) and multiple different types of partnerships, as well as non-profit corporations. Taking the following steps can help a new business owner to choose the best formation option for their vision when starting a new company.

Evaluating the company’s five-year plan

Although it is possible to change a business’s type after the company grows, having the right business type from the earliest days of operations is usually the best option. The ease of initial startup should not be the only consideration. People must think about how much risk there will be and how big they hope the company will grow when deciding the right business type to form.

Thinking about their funding

Different types of businesses are better depending on the startup capital someone hopes to obtain. Whether an individual wants a business loan from a bank or to offer stock to bring in shareholders to invest in the company, the type of business will influence what sorts of financial support and entrepreneur can obtain. The more outside capital someone requires, the more likely it is that they will need a more complex business form than a simple sole proprietorship.

Assessing end goals for the company

Does an entrepreneur hope to resell their business interest to a larger company after achieving certain goals? Do they intend to continue running the company as a professional practice until they retire? Will they pass it to their children, or will a partner take over when they want to retire?

Someone’s long-term goal for the company, whether it is selling the business or passing it to the next generation of their family, will influence the right structure to utilize during the startup phase. The type of entity a business chooses can affect everything from the entrepreneur’s liability to the tax obligations for both the owner and the business.

Choosing the right business type can prove to be of the utmost importance for protecting an entrepreneur’s interests and maximizing the potential of investments made in the business.