Selecting the best business form for a new business is an important step in the business formation process that should not be overlooked. As a result, entrepreneurs starting up a new business should be familiar with the different business types, the significance of different business forms and which one to select to meet the needs and situation of the business.
When selecting a business form, the entrepreneur should consider which business form will meet the needs of the start-up business, as well as continue to meet the needs of business as it grows and enjoys success down the road. The business form selected has an impact on the control of the business, the cost of running the business, how the business is taxed and the personal liability of the business owners. It can also impact the ability of the business to raise additional funding which can impact the growth and success of the business.
Each business form may have certain benefits that are better suited in different situations. A sole proprietorship is the simplest business form that provides the greatest control over the business for the business owner, however, it does not provide protections against personal liability. Like a sole proprietorship, a partnership also provides tax advantages and control for the partners but the partners are personally liable for any claims brought against the partnership.
A corporation provides personal protection but can be expensive to administer and is sometimes referred to as double taxed. Lastly, a limited liability corporation provides protection from personal liability and also favorable taxation. Business law resources are available to help entrepreneurs get their businesses started up and off on the right foot so they should be aware of the different business forms so they can select the best one for them.