Before beginning a small company, one of your first choices will be picking the right company construction. Which you select will depend on several variables, including price, taxes, liability concerns, and fiscal construction. Here are a few of the advantages and disadvantages of different company structures for your small business startup.
Sole Proprietorship – If your small business will probably be a one man show and simplicity of construction is valuable to you, a sole proprietorship may be the means to go. It’s the simplest and least expensive company construction for a startup, since the company and the owner are the same.
Joint Venture – In some methods, a company joint venture is much like a sole proprietorship with multiple owners. Nevertheless, a joint venture is more complicated, since possession and control of the company is in the hands of a couple of associates, which can make the decision making procedure more cumbersome. Additionally, associates have joint obligations, meaning each associate is responsible for actions taken by other associates, including contracts signed or debt incurred.
C Corporation – A C corporation is a legal entity different from the person or people who began the company and the management team. Corporations can be expensive to begin, given state filing and other regulatory and reporting demands. Investors generally aren’t liable for the corporation’s debts and other obligations. Edges of the corporate construction contain the ability to raise capital by selling shares and the simple transfer of shares.
S Corporation – There are other differences, such as some constraints on S corporation stock transfers and stock possession, but S corporations are subject to a lot of the exact same regulations as C corporations. The largest difference between an S corporation and a C corporation is that an S corporation passes corporate income and losses through to its investors, who report them on their personal income tax returns.
Limited Liability Company (LLC) – A limited liability company is much like a corporation in that its owners’ personal liability for the LLC’s debts and activities is limited, but it’s similar to a partnership venture in that its income passes through to individual owners (generally called members) for tax purposes. Nevertheless, an LLC isn’t a corporation. Rather, it’s a kind of unincorporated organization, and it doesn’t have to be for profit.
Which company structure you select for your small business startup will depend on your own aims for the company. If your plan is to run the company yourself, are not concerned that it survive you and need a straightforward, low cost construction, a sole proprietorship makes sense. If, on the other hand, you should raise startup capital from outside investors, intend to take the business public later on, and are concerned it can continue when you’re gone, a corporation may be the better option. Recall, a company’s construction is not set in stone. By way of example, a sole proprietorship or partnership can incorporate if, at some point, you determine the corporate construction is preferable. If you’re unsure which company construction to choose, you may need to speak with a business consultant, an attorney who specializes in company law or your accountant to assist you to comprehend the pros and cons of each for your small business startup.