Owners have a lot to consider when building their business. Some begin by creating innovative products and mapping out their ideal business model. Doing both are important steps in laying a solid foundation, but they can’t be done without having the appropriate business structure.
Owners need to choose one wisely, as a business’s structure can have a significant impact on its operational capability.
Different types of structures
Typically, a business’s structure depends on its size, industry, technology and competitive environment. For those looking to do freelance writing, bookkeeping or home health care, a sole proprietorship can be a practical option. Unfortunately, sole proprietorships are often subject to a $15.3% self-employment tax after their first $132,900 of net income. They are also personally responsible for any business liabilities.
For those looking to avoid personal liability and self-employment taxes, a limited liability corporation can be a more sound option. This structure can give owners the protections of a large corporation, but still allow them to run their organization as a small business. However, an LLC doesn’t save much more on taxes. LLCs can also have more filing fees and operational costs.
Factors that can impact an owner’s decision
These are some matters that can influence how owners set up their business:
- Whether they have a partner or investor in the business.
- The owner’s business goals and marketing plans.
- The administrative costs and demands of setting up specific entities.
- Whether owners have partners or investors in the business.
- The amount owners have in earnings and deductions.
Prosperity starts at the foundation
Owners put a lot of work into the organizations they build. While having a vision, passion and good work ethic are crucial, picking a structure that is logical and profitable is equally essential. Those who have questions about what arrangement works best for them, an attorney can help guide them through the complexities of business formation.