What Type of Business Structure or Entity Should I Choose?

Category : New Business Setup
Posted On : 5th Sep 2011

 

 

Write a Business Plan

The first step in making a decision to start a business is to write a business plan. Whether big or small every business should have a written business plan before moving forward. If you have never written a business plan before there are resources that can assist you.

 

What Type of Business Should I Choose?

There are different business structures/Entitites you can choose when starting your first business. You should have a good understanding of the pros and cons of each type. It is strongly recommended that if you are unsure of which structure is best for your business you should seek professional advice from an attorney or accountant.

Sole Proprietorship

  • Advantages
    • Low start-up costs
    • Greatest control by owner
    • Minimum working capital requirements
    • Tax advantage to small owner
    • All profits to owner
  • Disadvantages
    • Unlimited personal liability
    • Lack of continuity
    • More difficult to raise capital

Partnership

  • Advantages
    • Ease of formation
    • Low startup costs
    • Additional sources of venture capital
    • Broader management
    • Limited outside regulation
  • Disadvantages
    • Unlimited personal liability
    • Lack of continuity
    • Divided authority
    • Difficulty in raising additional capital
    • Hard to find suitable partners

Limited Liability Company

  • Advantages
    • Limited liability
    • Flexible management structure and ownership
    • Continuous existence
    • Legal entity
    • Easier to raise capital
  • Disadvantages
    • More expensive to organize then a proprietorship or partnership
    • More regulations then a proprietorship or Partnership

Corporation

  • Advantages
    • Limited liability
    • Specialized management
    • Ownership is transferable
    • Continuous existence
    • Legal entity
    • Easier to raise capital
    • Unity of action account having centralized authority in board of directors
  • Disadvantages
    • Closely regulated
    • Lack of continuity
    • Charter restrictions
    • Extensive record-keeping necessary
    • Double taxation, except when organized as an “S” Corporation
    • Difficult to liquidate investment

There are other structure also can be considered to determine the best structure for your new business set up.

 

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