There are several factors that need to be considered when choosing a business structure for your company. They include: personal preference, available capital, taxes, legal issues, and the overall profitability of the company. In this article I will discuss some of the more important aspects to consider when making this important decision.
The first factor that needs to be considered is if the company wants to attract investors or if it would benefit from investors. There is little point in starting up a business without a target audience of customers and clients, and then hoping to attract investors because you believe in the product/service. There are, however, several businesses that have been able to do just that by choosing a business structure that would allow them to attract investors while not necessarily losing a large portion of their profits in the process.
The second factor that should be considered is if the company has potential in order to profit in a growing economy. There are several different models that have been used to determine this, and depending on whether the structure would be pass-through taxation or a private equity structure could help determine this. Pass-through taxation means the income is taxed only once, rather than being taxed multiple times throughout the year as it would be under a private equity structure.
The third consideration is that of the company's ability to make money in the future. If the company plans on being involved in local or regional growth markets, it is important to consider a business structure that allows for a separate legal entity. A sole proprietorship is not set up to provide a separate legal entity for investors because there is no way for them to gain capital through dividends. A limited liability corporation (LLC) allows investors to gain access to the profits of the business at any time without having to pay taxes on them. A new startup may not have this option available, but some existing companies can elect to be a publicly held corporation (PLC).
The fourth and final consideration involves timing. One of the biggest advantages of choosing between S corporations and partnerships is that they are able to be organized in any way that suits the needs of the investors. Partnerships require a board of directors and can only be operated in specific jurisdictions. There is also limited liability, which comes into play when one partner decides to liquidate the partnership. As well, one partner can always quit the company without having to pay any fees. S corporations allow investors to invest in the company without having to worry about these issues.
When choosing between corporations and partnerships, it is important to consider all of these factors. It will take careful planning and evaluation on the part of the entrepreneur before making a final decision on choosing a business structure. This will be an important investment that will dictate how the company operates for many years to come. Finding the right structure for one's company requires a lot of careful consideration. The advantages and disadvantages of the various business structures should be carefully weighed. While every choice is viable, investors need to be sure that they are choosing a structure that is best for their type of company.
The first factor that needs to be considered is if the company wants to attract investors or if it would benefit from investors. There is little point in starting up a business without a target audience of customers and clients, and then hoping to attract investors because you believe in the product/service. There are, however, several businesses that have been able to do just that by choosing a business structure that would allow them to attract investors while not necessarily losing a large portion of their profits in the process.
The second factor that should be considered is if the company has potential in order to profit in a growing economy. There are several different models that have been used to determine this, and depending on whether the structure would be pass-through taxation or a private equity structure could help determine this. Pass-through taxation means the income is taxed only once, rather than being taxed multiple times throughout the year as it would be under a private equity structure.
The third consideration is that of the company's ability to make money in the future. If the company plans on being involved in local or regional growth markets, it is important to consider a business structure that allows for a separate legal entity. A sole proprietorship is not set up to provide a separate legal entity for investors because there is no way for them to gain capital through dividends. A limited liability corporation (LLC) allows investors to gain access to the profits of the business at any time without having to pay taxes on them. A new startup may not have this option available, but some existing companies can elect to be a publicly held corporation (PLC).
The fourth and final consideration involves timing. One of the biggest advantages of choosing between S corporations and partnerships is that they are able to be organized in any way that suits the needs of the investors. Partnerships require a board of directors and can only be operated in specific jurisdictions. There is also limited liability, which comes into play when one partner decides to liquidate the partnership. As well, one partner can always quit the company without having to pay any fees. S corporations allow investors to invest in the company without having to worry about these issues.
When choosing between corporations and partnerships, it is important to consider all of these factors. It will take careful planning and evaluation on the part of the entrepreneur before making a final decision on choosing a business structure. This will be an important investment that will dictate how the company operates for many years to come. Finding the right structure for one's company requires a lot of careful consideration. The advantages and disadvantages of the various business structures should be carefully weighed. While every choice is viable, investors need to be sure that they are choosing a structure that is best for their type of company.
