If you are in the process of starting a new business, congratulations! This is a big time in your life. If you are just starting out, you may be wondering what kind of business entity you want your company to be. When it comes to this question, entrepreneurs have three options: sole proprietorship formation, LLC business registration, or corporation development. Initially, most startups go with one of the first two choices because of the simplicity of doing so.
Why Entity Types Matter
The type of business you decide on will impact a number of legal factors. Most of all, your entity type will determine:
- Personal and business liabilities
- Taxation methodologies
- Paperwork complexity and amounts
The most complex kind of entity is a corporation. You can expect to need a lawyer to assist with paperwork, and costs will be higher. With the simpler sole proprietorship or LLC business registration, you have a question of liability. With an LLC, you will have liability protections that a sole proprietorship will not offer.
Which Entity Is Best
To figure out the best option for yourself, you will need to consider what is important to you. How is your company run? Do you have a lot of customers or situations where liability will be a concern? If so, setting up your startup as a sole proprietorship may not be a good idea. If you need protection if you or your business causes damages to other people, an LLC may be better. Creating a corporation can be a good idea if your business has been running for awhile. Most entrepreneurs do not start out as corporations. They do that after growing more.
When you first start a business, one of the first questions you will face is: Should you go for a sole proprietorship, corporation or LLC business registration? The answer to this question ultimately depends on your unique circumstances and what option makes the most sense for the startup you are running.