How to choose the best structure for your business

Choosing a business structure may not be the first thing you think about when pursuing your dream of a small business. But it is an important step in starting a business. The business structure you choose affects your tax status, financing, record keeping, and accountability.

What is the Legal Structure of a Business?

The legal structure of a business, also known as a business entity, is a government classification that governs certain aspects of a business. At the federal level, the legal structure of your business determines your tax burden. At the state level, it can affect accountability.

Why is the type of business structure important?

Business structure refers to how a business is legally organized. Not all small businesses are required to be registered with the state or federal government, but if you expect your business to grow over time, we recommend that you plan ahead and choose a business structure that fits your future growth.

Business Structure Option.

• Exclusive. “If you’re doing business, but you don’t register as another type of business, you’re automatically considered a private owner,” Stevens said. “It says. If you’re not doing business under another name, you don’t have to file any paperwork to officially start your business. In that case, you have to submit a database administrator form. David Ciccarelli, founder and CEO of Voices, started his business as a sole proprietor because it was “quick, easy and, frankly, the cheapest option available.” The downside is that banks are more reluctant to lend to private owners and can’t sell stock, Stevens says.
• Collaboration. When Ciccarelli and his wife became business partners, they started a new organization “because we wanted to change the name and create something new that reflected our collective ideas.” A true partnership is not necessary in a business with more than one owner.
• Limited Liability Company (LLC). Stevens says an LLC is a popular choice because it’s “very easy to set up and has no limit on the number of shareholders.” That’s important if you’re thinking about bringing in investors. Deven Patel, founder and CEO of Web domain trading site Alter, has experience making those decisions. “I’m a serial entrepreneur who has founded many businesses over the years using every conceivable structure,” he says. “The LLC structure is very suitable for small businesses. It has to do with the fact that it’s very easy to manage because there’s less paperwork involved. “Roy Harmon, owner of Advertoscope, chose an LLC. “Because some of my clients seemed to view it as a comparative sign of reliability and personal ownership.”
• Enterprise. There are two types: C corporation and S corporation. “All established companies are basically C corporations,” said Charles Reed, CEO of GetPayroll. “It says. “The S corporation election is just a tax election (it requires filing Form 2553.) “S companies are popular with small business owners because they are not subject to double taxation like C companies. In other words, the tax-free income at the corporate level goes to the owner. However, an S corporation is limited to 100 shareholders, and only an “individual” can own a block of stock. This means U.S. citizenship.

Choose a Business Structure.

Getting an overview of the different types of business structures and the pros and cons of you and your company is only the first step. Every business is unique, and each of these structures has characteristics that will affect settings, operations and the future.

First, contact your local SBA office or SCORE office. Review your business plan with experts and mentors to learn more about which business structures will help you revitalize and grow your business in the future.