Imagine going to a tasty buffet restaurant with a large selection of soups, salads, meats, and desserts. This variety is similar to the choices available to entrepreneurs looking to dive into small business ownership. Each business structure option offers something unique, and there are certain factors to weigh when making such an integral decision.
Consider the following factors when choosing a small business structure:
#1 –The kind of business you intend to have
Every industry consists of many small businesses that are functioning extremely well. Since all companies are unique, it’s important to specifically frame the kind of business you currently run or plan to launch. After doing so, you can then select the structure that provides the best foundation for it. Are you imagining having a retail outlet? Will you do consulting? Will you hand-weave baby blankets or offer online marketing services? Some company structures simply go hand-in-hand with certain kinds of work, so nail down the exact trade you’ll conduct before deciding on an entity structure for it.
#2 – Anticipated size of the company
How many individuals are or will be a part of your small business? For instance, a one-person operation where one business owner handles everything could function quite well as a sole proprietorship. Becoming a single-member LLC could give this type of company a bit more formality. On the other hand, a business with intentions of bringing on multiple employees could work better as a multi-member LLC, S corporation, or C corporation. While company size is a major factor, it does not always make a huge difference in which way the pendulum initially swings. This is because a business can be born with one structure and then change in the future.
#3 – Projected profits and revenue for the business
The money that a small business generates can tremendously affect what legal entity structure is appropriate for it. If a business represents more of a side job that only generates a small revenue stream, taking on a formal entity structure may not be required. But if you decide to run a full-fledged small business with aspirations of supporting yourself and your family with it, considering the corporate or LLC routes may lead you down the best possible road.
RELATED: When to Change Your Legal Structure
#4 – Financial arrangement – expenses, deductions, etc.
Expenses, fees, and tax deductions only apply to certain business entity structures. This is why looking at the big picture when considering these factors is such a big deal. The expenses incurred by a sporting goods retailer would obviously be different from those incurred by a tutoring agency. These unique costs affect the IRS tax-saving opportunities as well. By adopting a small business structure that matches the specific needs of your company, you will be able to take advantage of more deductions or credits, along with unique entity-specific strategies that can help keep more income in your business bank account.
Recommended Books on Choosing a Small Business Structure:
- Business Legal Structures: Compared and Explained
- Legal Guide for Starting & Running a Small Business
- Legal Forms for Starting & Running a Small Business
- LLC or Corporation?: How to Choose the Right Form for Your Business
- Run Your Own Corporation: How to Legally Operate and Properly Maintain Your Company Into the Future
- The Complete Book of Business Legal Forms (with CD)
- How to Change from Sole Proprietorship to Corporation
- LLCs and C Corporations: Similarities and Differences
- 4 Ways to Reduce Your Small Business Taxes
- How to Reduce Capital Gains Tax of a C Corporation
- When to Change Your Legal Structure