Choosing Between Legal Structures
Question
How should I go about choosing which legal structure is right for my new business?Answer
An entrepreneur should consider carefully the many factors that will impact his business when choosing the best form of business ownership or structure. While you can change the entity structure later on, the choice of structure will impact multiple aspects of the business, including taxes, liability, ownership, succession and control. Be sure to consult with an attorney and tax advisor.
Your considerations should include the following when choosing a business structure:
- Your vision for the business in terms of its products, services, size and nature (the bigger and broader, the more likely you should go with a corporation instead of a sole proprietorship)
- The control and governance structure required (sole owers should go with sole proprietorship, S corp or LLC, multiple owners should go with partnership, S corp, LLC or C corp)
- The "hassle" factor of the legal and financial complexity and tax consequences (sole proprietorship is easy, corporations are complex)
- The protection you need regarding your company's potential liability (corporations offer more protection)
- The expected profitability of the business, whether profits are to be distributed or retained for growth and the tax consequences (show your company plan to your tax advisor)
- The expected lifespan of the business and how you plan on disposing of the business (corporations are better for succession planning)
- The capitalization plan for the business and whether or not you plan on raising capital from outside investors (C corporations are usually required for venture capital)
See the individual descriptions in this Q&A section for more details:
- February 13, 2014
- Forming a Company
- Ask a New Question
Jesse Rodriguez March 31, 2011
At what age can you file a business under sole proprietorship? For an example can you use your son that is 14 yrs of age?
Wade Myers April 1, 2011
No filing is required to operate as a sole proprietorship, which simply means you operate without any formal organization and pay personal taxes on any income. You should consult with an attorney to make sure you have the best organizational structure to fit your needs. It is unclear what you mean by "use your son." A sole proprietorship is tied to the individual, so if it your son's business then that is fine, but if it is your business, the sole proprietorship should be under your name and taxes paid under your social security number.
Please login to post a comment.
Member Log In
Register Now
Register now to gain access to all of the resources available on our site. Basic membership is free!