Here’s a question or you. What’s the first thing you want to do once you’ve come up with a business concept?
Answer: Determine your legal structure – in other words, what kind of business are you going to legally establish?
Not the answer you were expecting. I’m not surprised, most people don’t.
So how do you choose the right business legal structure? A good start is to answer the following:
1. Are you running the business by yourself or with others?
2. Is it more important to you to have a simple business and tax structure or less personal liability for debts and corporate judgments?
3. Will you need to raise a substantial amount of cash?
4. Is the business form prescribed by state law / regulation?
5. What’s the expected life (duration) of the venture?
Here are the options:
· Sole Proprietorship
· Corporation (C or S)
· Limited Liability Company
What’s the right choice? The one that best matches the purpose of the business in question, the level of personal risk you’re willing to accept, and the one that best allows you to realize the answer for the above questions.
Complex? Yes, but the determination is not hard. As always I encourage you to seek expert advise, in this case form an attorney or CPA. There are many laws and regulations that apply to businesses so it would be wise to arm yourself with the appropriate knowledge.
One last cautionary note, don’t confuse the legal form of ownership with the size of the business. There are many corporations that are small businesses and LLCs that have hundreds of millions in revenue.