Starting a business — whether your first one or one in a list of many — is an exciting experience. You’re in control of every decision, and you don’t have to report to anyone. Unfortunately, with this power comes great responsibility. Now, you have to find answers to all your questions yourself and make decisions with conviction — whether or not you know if it’s the right path.
One of these complicated questions you will encounter first is how you’ll structure your business. The way you answer this question will determine the rest of the decisions you make in regards to growing your business. To select the proper legal structure for your new business, consider the following tips:
Set Up as an Operating Entity
While it’s quick and easy to turn your business idea into a sole proprietorship, it exposes you to the risk of legal liability issues, guarantees you’ll pay the worst tax rates, and makes it difficult to sell your business in the future. Instead of operating as a sole proprietor, establish your startup as an operating entity, like a corporation or LLC. This will protect your personal assets and show prospective customers and investors that you’re serious about building a successful business.
Consider the Amount of Control You Would Like to Have
When choosing your business structure, it’s important to consider the level of involvement you would like to have within your business. If you’ve dreamed of having sole ownership (and control) over your business, a sole proprietorship would be the ideal route to pursue. However, if you would rather receive assistance in making decisions — from a partner or outside investors — it would be better to register your business as a partnership, C-corporation, or LLC.
Determine How Much Liability You Can Handle
Small business owners and entrepreneurs often choose a legal structure based on the level of liability they can manage. With a sole proprietorship, you would be personally responsible for anything that happens within the business. In contrast, structures such as an LLC or C-corporation would legally protect your personal assets in the event something happens with the company.
Don’t Forget to Think About Future Funding Needs
Do you plan on seeking funding from investors at any point during the growth of your business? If you hope to raise funds or issue common stock, you will want to register your business as a C-corporation. You do have the option to convert from an LLC to a C-corp if you’re unsure whether you’ll be raising outside funds in the future. In fact, starting as an LLC is a simple and quick way to get your business off the ground.
Consult a Business Lawyer
Whether you’ve started businesses in the past or this is your first one, it would be beneficial to speak with a business lawyer. They can guide you through making the best decision for your company by presenting the pros and cons of each business structure.
If you’re ready to start a new venture, schedule a consultation with our team at Garibian Law Offices. We can help you with an LLC creation in PA, and our NJ business formation attorneys can answer any questions you have about starting a business. Contact our team today!