Once someone decides to start her own business, one of the first dilemmas she will be faced with is: what kind of legal structure should I form?
The law offers various types of businesses, from sole proprietorships to LLCs to S Corporations to Not-for-profit corporations. People starting a business may know what they want to do or sell, but they have trouble determining which legal structure is right for them.
When clients ask me this question I always start by telling them”it depends.” I then pepper my client with a handful of questions to see how she feels about the following key factors:
– Control. How much control do you want to have over the business you are starting? If you want exclusive control then your business is going to take a different form from someone who is looking to share decision-making power.
–Liability. Some legal structures do not protect your personal assets. If you are concerned that the money you own personally (as opposed to the business funds) remains separate, you need to choose a legal form that provides for this.
–Raising capital. More basic entities (like sole proprietorships) are restricted in how they can raise capital. If you are planning to raise funds through means like selling shares, you should consider a legal structure that allows you to do this.
–Taxes. Each legal form is taxed differently. You should get advice from an accountant and make sure that the form you choose will be the right financial fit for you.
If you are thinking of starting a business these are some great topics to consider before choosing a legal structure. Do any business owners have other tips or factors they considered when deciding the legal structure their business would take?