Starting a Business? How to Choose the Right Ownership Structure

9:12 pm Business Formation, Business Planning

open sign Starting a Business?  How to Choose the Right Ownership StructureDeciding on the right structure for your business is an important step in starting that new business off on the right footing.

The proper structure – LLC, corporation, partnership or sole proprietorship – depends on what kind of products or services your business will provide, the ownership structure and the financial situation.  Here are some factors to consider when choosing a business ownership structure:

Complexity – if you are starting your business without a lot of capital and will be essentially operating on a shoestring in the beginning, you may wish to choose a simple structure, like a sole proprietorship or partnership.  Corporations and LLCs are more complex corporate structures and more expensive to maintain, requiring careful record keeping and certain operational formalities that may not be necessary if your business concept is a simple one.

Risk – if you are operating an inherently risky business – for example, trading stock or construction – you will probably want a structure that provides personal liability protection to shield your personal assets from business claims.  A limited liability company (LLC) or corporation provides this kind of protection.

Taxes – taxes on business profits for partnerships, LLCs and sole proprietorships are all reported the same way: on the personal income tax returns of their owners, who must pay income taxes on all net profits.  Corporations pay corporate taxes at special rates on any profit at year-end.

Investment Capital – having a corporate structure allows you to sell shares in your business to raise investment capital.

Contact our Orange County law firm for guidance in business planning and protection.

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