Make Your Choice of Business Entity Count
When you’re starting a business, there are many different things to consider, but none are as important as your choice of business entity. This one vital decision can determine the entire direction of your business, and it can ultimately determine how much success you experience. It requires a lot of thought, planning, and the right advice from a professional CPA.
Which entity is right for you?
There are four main business entities to choose from, but some entities can further be divided into a few categories, providing you with even more choices.
- Sole proprietorship – The entirety of the business falls on the shoulders of one individual.
- Partnerships – They can involve two or more individuals and can further be broken down into general partnerships, limited partnerships, and limited liability partnerships.
- Limited liability companies (LLC) – This hybrid entity combines a partnership with a limited liability company.
- Corporations – This business entity is its own and completely separate from its owners.
Each choice of business entity comes with its own pros and cons, which is why it’s so important that you seek out professional help before you make a decision.
Simplify your business, protect your personal assets, and reduce your tax burden
Each business entity has its own unique features. It’s wonderful to have so many choices, but there are many things to consider when choosing the one that’s right for you. First, it means simplifying your business by choosing the entity that requires the least amount of work for the biggest payoff.
It’s also extremely important to choose a business entity that protects your personal assets. If you have quite a bit of wealth, you will likely want to look into an LLC or a corporation, but because they are a bit more involved, making this choice shouldn’t be taken lightly.
By choosing the right business entity, you can simplify your business and protect your personal assets, but you can also reduce your tax burden. Each has their own tax benefits to offer, but only when they are paired with the right company structure.
Get the advice you need to make the right choice for your business
When it comes down to it, the choice of business entity is not one you should make on your own. If you need help making the right choice, seek out support from a professional CPA. Contact us to learn more about each business entity and which one would work best for you and your business.
Choice of business entity FAQ
Will I be personally liable for my business?
It is extremely important to consider whether you’ll be personally liable for your business when you are debating which business entity is right for you. Depending on the business, being personally liable may not be an issue, but being personally liable for other types of businesses can mean financial ruin if anything goes wrong.
If making sure that your personal assets aren’t at risk is important to you, it’s best to choose an LLC or a corporation. A sole proprietorship or partnership may mean your personal belongings are at risk.
Are tax advantages the best way to determine which entity is right for me?
Taxes should definitely be taken into account, but the personal liability, as mentioned above, is an important consideration as well. However, there are even more things to consider.
The cost of recordkeeping and paperwork associated with a corporation can be very high. That money could be saved by choosing a sole proprietorship or partnership. It’s possible that you’ll save more on recordkeeping than you would on taxes, which might mean you make a business entity choice that you didn’t initially expect to make.
Can I change my business entity later?
Businesses are always evolving. One that started as a sole proprietorship may soon evolve into a larger endeavor. If you find that is the case, you can change your business entity at a later date.
This is an especially important consideration if you start thinking about what will happen to your business if you’re no longer in charge. The entire business may dissolve if it’s under the direction of a sole proprietorship or a partnership but will continue with an LLC or corporation status. This leads many business leaders to change their business entity 5, 10, or more years on down the road.
Do I need to enlist the help of a lawyer when establishing a company?
It is undoubtedly worth your time to enlist the help of a CPA when it comes to your choice of business entity, but you may also want to enlist the help of a lawyer.
A CPA is indispensable when it comes to making the most out of your financial situation, but a professional attorney can help you complete business forms, negotiate leases and contracts, secure necessary licenses and permits, prepare partnership or stockholder agreements, and more. If you are unsure whether or not you need the help of a professional attorney, ask your CPA during your next meeting. Because they are familiar with legal rules and regulations, they will be able to tell you if you could use the additional professional help.