Selecting a business structure is an important first step in forming a new business. For that reason, new business owners should know how to evaluate different business forms to make the best decision for them and for their business.
Cost and operation
Setting up a new business can be expensive and some business forms are more expensive to set up than others. New business owners should take the cost of setting up the particular business form into account. Some business forms may also be more costly to operate on an ongoing basis which should also be thoughtfully considered.
Ease of setting up
Setting up a corporation can be more complicated than setting up a sole proprietorship. Corporations and limited liability companies also must usually be registered. Ease of setting up considerations should be evaluated.
Termination and sale
How the business can come to an end is another way to evaluate the best business form. Some businesses may terminate automatically and others may require more work which is why termination is also worth taking into account. Additionally, some business forms, such as a sole proprietorship, making selling the business simpler.
How much information is available to the public can also vary by business form. Some forms will require public filings, as an example, which should also be considered.
Risk and taxation
The amount of risk for the owner, partners or members associated with the particular business form should be considered. Sole proprietorships and partnerships offer less personal liability protection for owners and partners.
The business owner should always know how the particular business form they are considering will be taxed.
Capitalization and expansion
Some business forms make it easier to raise capital when needed. Other business forms may make it more difficult to expand if the number of shareholders are limited, as an example, which is why capitalization and expansion considerations should be taken into account.
Business formation decisions are important decisions which is why business law can help. New business owners should be familiar with the different types of business structures and how to evaluate which is best for their particular business venture.