Factors Considered When Choosing A Business Structure

As a business owner, one of the critical decisions that you will make is to choose the form of business structure.

You may want to consult with an accountant and an attorney to help you choose the right business structure for your home based business.

The most common ones are sole proprietorship, partnership, corporation, and limited liability companies.

Most home based business owners start off as a sole proprietorship because this is the simplest and the easiest to start and then would later convert the business to either a corporation or a limited liability company (LLC).

When choosing a business structure, there are several factors that you need to consider. Below are some of those:

A. Potential for Business Growth

  • What is your vision with regards to the size of the business?
  • What is your vision with regards to the nature of the business?

B. Level of Control

  • Do you want to have complete (100%) control of the business?
  • Are you alright sharing control with someone else?

C. Potential Liability

  • How comfortable are you with business creditors going after your personal assets when your business failed to meet its obligations?
  • On the contrary, how comfortable are you when personal creditors come after your business assets?
  • Will you be alright when you lose a business lawsuit and they file a judgement against your personal properties?

D. Tax Impact on your business profits

  • Do you want to be taxed just once on the profits of the business?
  • Or are you good with the idea of your profits getting taxed twice (double taxation)? One on your business tax return and another when you claim the profits on your personal return.
  • Are you alright paying a minimum state tax liability even if you did not make any profit? (Not the case for all states)

E. Ability to raise funds

  • Do you have enough of your own funds to start the business?
  • Do you have enough capital do expand your business?
  • Is your credit score excellent for you to qualify for business loans?
  • Do you mind having multiple owners to help you raise more capital?

F. Ease of formation

  • How easy do you want to form your business?
  • Do you mind having to complete a lot of state forms to form a separate business entity?

G. Dealing with government regulations

  • Businesses that are separate entities from the owner have to adhere to stricter government regulation