New Venture Lab: Equipping Christian Entrepreneurs

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:

• Sole Proprietorships
• Partnerships
• Corporations