Starting a business can be a very exciting adventure. Regardless of whether you are just graduating from college or have been an active participant in the workforce for 20 years, there is no denying the thrill of starting something new. But with this decision comes a number of important questions. For instance, what will your business be? Where will you operate? Who is your desired clientele? But of these questions, there is none more important when starting out than this one: What is your business structure going to be? As you may or may not have known, there are several different business structures that you can choose from, depending on what your venture is going to be and whether or not you are starting the business alone or with some partners. If you are not entirely sure what the right business structure is for you, then the good news is that you have all of the information you need to figure that out in the sections directly below. All in all, there are six business structures that you have to choose from, and just a few moments of examination and contemplation are all you will need to pick a structure and get your business started.
- C Corporation: This option should only be considered by companies that have been in business for an extended period of time and have various employees. The advantages of a C corporation generally include the ability to create capital, limit shareholder liability and attract new employees because of stock options. Some examples of C Corporations are publicly traded companies that don’t have a limit on shareholders, such as McDonald’s and FedEx.
- S Corporation: This type of corporation is not unlike the one mentioned above. The main difference between the two is that S corporations are only taxed on a personal level. The advantages of an S corporation are typically tax savings, credits on business expenses and independence. Businesses that typically file as S corporations are CPAs (certified public accountants) and real estate offices.
- Sole Proprietorship: If you are starting up a company on your own, this is most likely going to be the structure that you go with. It is a simple business structure, and it makes you responsible for assets, liabilities and all other company-related issues. The advantages of sole proprietorship include an easy and inexpensive setup and complete control. While many sole proprietorships can be found in storefronts such as markets, this type of business structure is also used by professionals such as financial planners, catering companies, tutors and countless freelancers.
- Partnership: If you have a partner in your business, then a partnership is going to be your business structure. Beyond that, you and your partner will have to determine what kind of partnership it is going to be, depending on who the difference in your responsibilities to the company. In any case, a partnership is similar to a sole proprietorship in its advantages, as it is both easy and inexpensive to start. Partnerships can happen in any type of business, and some of the most notable partnership companies include Apple, Microsoft and Warner Bros.
- Cooperative: This is the business structure used when your company has a variety of owners and you want to benefit all of these members while simultaneously meeting a collective need. The advantages of cooperatives include less taxation and a large amount of funding/saving opportunities. A few types of common cooperatives include credit unions and certain purchaser ventures such as Best Western Hotels and ACE Hardware.
- Limited Liability Company: If you like different features from different business structures, an LLC may be the right choice for you. This type of business structure combines the partnership’s tax benefits and flexibility with the liability structure of a corporation. Furthermore, in addition to combining the benefits of a partnership and a corporation, LLCs are also attractive because they require less record keeping and due to the fact there are fewer restrictions on the sharing of an LLC’s profits. As for who typically chooses an LLC, this company designation works well for individuals with short-term endeavors, small businesses and even franchises.