3 Crucial Ways your Business Structure Matters: Choose Wisely!

business structure

When starting a new business, or growing your existing business, one of the most important things you’ll need to do is determine the appropriate business structure.  It is a crucial part of establishing the future path of your business.  So do your research, consult with an experienced attorney and choose wisely!

Common Business Structure Options

Before learning the reasons why the right choice of business structure matters, it is important to understand what options are available.  The most common types of business structures are the following:

  • Sole proprietorship – a good choice if you plan on running a small business on your own. It is fairly easy and inexpensive to establish this business structure meant for one owner.
  • Partnership – this structure involves two or more individuals who each contribute to the business and who share in the profits and losses of the company. You can consider a general partnership, limited partnership or joint venture, based on the roles or commitment each partner wants to assume.
  • Limited liability company – also known as an LLC, this entity is a kind of hybrid structure that combines the benefits of a corporation or partnership while removing the personal liability factor.
  • Corporation – an independent entity, separate from its owners. This is more complex and expensive than other business structures, but is a good choice if you have plans to take the company public or sell it.

These are not the only business structure choices available and you may find that a different option is best for your business.  It is always best to consult one of our experienced attorneys on important business formation matters like this.

What Factors are Affected by a Business Structure

The business structure you choose can affect many different aspects of your business formation and operations. Some of the most important ways include the following:

  • Taxes – the process of filing taxes differs depending on the business structure you choose. For example, in a sole proprietorship filing taxes is relatively easy with profits and losses being reported on the owner’s personal tax forms.  Partnerships and LLC’s also benefit from pass-through taxation to owners’ personal income taxes, with business losses often balancing out other earned income.  Corporations, on the other hand, require separate filing of business tax returns.  They do, however, have other tax advantages such as the ability to claim a variety of deductions for business expenses, benefits paid to employees and more.
  • Risk – different business structures come with varying levels of risk. For example, with a sole proprietorship or partnership, the owners assume all financial liability and their personal assets are at risk if the business fails or faces legal issues.  Conversely, an LLC keeps personal assets protected from business activities. Business owners are protected from personal liability if the business incurs excessive debt, thereby reducing a large risk component.
  • Capital investment – if future growth using outside funding is a priority, you need to make sure the business structure you choose allows for the ability to easily raise capital from investors. Many investors find corporations to be the most attractive option due to the ability to sell stock and the high level of liability protection.  Other business structures may not offer as many advantages to investors, so if investment financing is an important business goal you should select the entity that best aligns with those goals.

Our Attorneys Will Help You Make the Right Choice

Starting a business is a serious commitment so take the necessary steps to ensure its success right from the start.  The attorneys at Churchill, Quinn, Hamilton & Van Donselaar, Ltd have decades of experience helping small business owners protect their business while achieving their goals.  We can assist in all important legal matters for your business, including selecting the right business structure, obtaining licenses, drafting company contracts, employee non-disclosure agreements and so much more.  Contact us at 847-223-1500 to learn more or to schedule a consultation.