Choosing the Best Ownership Structure for Your Business
The right structure -- corporation, LLC, partnership, or sole proprietorship -- depends on who will own your business and what its activities will be.
When you start a business, you must decide whether it will be a sole proprietorship, partnership, corporation, or limited liability company (LLC). (If you need a brief explanation of the main business types, see Types of Ownership Structures.)
Which of these forms is right for your business depends on the type of business you run, how many owners it has, and its financial situation. No one choice suits every business: Business owners have to pick the structure that best meets their needs. This article introduces several of the most important factors to consider, including:
- the potential risks and liabilities of your business
- the formalities and expenses involved in establishing and maintaining the various business structures
- your income tax situation, and
- your investment needs.
Risks and Liabilities
In large part, the best ownership structure for your business depends on the type of services or products it will provide. If your business will engage in risky activities -- for example, trading stocks or repairing roofs -- you'll almost surely want to form a business entity that provides personal liability protection ("limited liability"), which shields your personal assets from business debts and claims. A corporation or a limited liability company (LLC) is probably the best choice for you.
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