There’s a lot to take into consideration as you embark on your entrepreneurial journey. Although you’ll have to give some attention to developing your products, securing supply chains, and hiring and developing talent, one of the first thing you’ll have to do is choose a business structure that you think is right for you.
You have many options here, which can make the business formation decision process complicated. But by taking the time to educate yourself about your options, you can better ensure that you make the business structure decision that’s right for you. So, what options do you have? Let’s take a look at some of the most popular business structure types.
Sole proprietorship
This is the easiest kind of business to setup, as you don’t have to worry about creating any contracts or agreements. It also gives you the most amount of control over your business. After all, you’re the only owner, so what you say goes.
But, just as with every type of business structure, there are some risks associated with a sole proprietorship. This includes increased exposure to liability. Here, you’ll be personally liable for any debts incurred by your business, which can be a huge risk.
Partnership
This is another popular business structure where two or more individuals agree to go into business together, subjecting themselves to a partnership agreement. This partnership agreement will specify each partner’s responsibilities in the business, as well as how profits will be divided amongst the partners.
You can also retain a fair amount of control over the business in a partnership, but there will certainly be other voices that you’ll have to contend with if there’s disagreement.
Although creating a partnership can ease the financial strain of starting a business, it also has liability risks. Generally speaking, you can be liable for the business’s debts, even if they were incurred by other partners.
That said, a partnership structure can have tax benefits, which means that you might be able to bring home more income using this structure type compared to creating a corporation.
Corporation
Another option is to create a corporation. With this business structure, you’re able to isolate yourself from the business’s debts, meaning you won’t be held personally liable if your business is sued or accumulates an extensive amount of debt.
While that’s certainly beneficial, a corporation does have its shortcomings. Among them are the fact that you’ll end up losing a significant amount of control over how your business is run. Your company might have a board of directors that steers important business decisions, and their point-of-view may not always line up with yours.
You might also have to tailor your business practices to ensure that shareholders are kept happy if you’ve issued stock as a way to raise capital for your business.
Know the full extent of your options
This is just a broad overview of three main structure types. However, even within each of those categories there are more nuanced structures that may or may not suit your needs. That’s why it’s important that you understand the options available to you so that you can make the decision that’s right for you. Hopefully then you can build your business into what you want it to be.