If you are planning on starting your own business, it is important that you understand how to structure it. Depending on how you choose to run your company, you may run into issues related to double-taxation or have to keep extensive records that may cost precious time and money. For many business owners, it may be a good idea to consult with a business law attorney to determine how best to organize a new company.
You Could Choose To Be a Sole Proprietor
One option is to run your company as a sole proprietor. This is ideal because you can file your taxes at the same time that you file your personal return. There is little paperwork that needs to be done, and you don't necessarily need to have a separate bank or checking account. The one downside is that there is no limited liability protection in the event that someone wins a judgement against your company.
Limited Liability Companies May Be Ideal
A limited liability company (LLC) is a hybrid between a sole proprietorship and a corporation. The LLC may be a single-member entity that receives pass-through tax treatment. However, it can also choose to be taxed like either an s-corporation or a c-corporation. Unlike a corporation, an LLC doesn't need to have a shareholder meeting or engage in much of the record keeping that traditional or small business corporations are required to do.
Why Choose a Corporate Entity?
However, this doesn't mean that you won't receive maximum benefits from choosing to operate as an actual corporation. For some investors, it is easier to work with a company that is structured in this manner. It gives the company credibility while creating the perception that it will be around for a long time. Investors also know that the owner of the company isn't going to go bankrupt if anything happens or that he or she can take money out of the company without a record of such a transaction taking place.
You Are Allowed to Change Your Mind
It is important to note that you are allowed to change your company structure at any time. This means that a sole proprietor could change into a corporation while a corporation could convert to an LLC in some cases. If you do choose to change your corporate structure, you may have to alert relevant government agencies as well as your shareholders or other relevant parties.
Part of being a successful business owner is being organized in a manner that helps the business maximize its profit potential. With the right structure, you may be able to maximize the benefits of any losses incurred while also making it easier to solicit investors or get bank loans.