Whether you are an experienced business owner, a beginner entrepreneur, or somewhere in between, it is wise for you to know which type of business entity best suits your situation. Differences between setting up an LLC, sole proprietorship, or incorporated business can make or break your bottom line, protect your personal assets, and affect other areas of your career. To be sure you are making the best decision for your new business, or to make the appropriate adjustments as your business grows, knowing the key details between three common business entity options is crucial.
One of the easiest ways to begin your business is to do so as a sole proprietorship. Without expensive licensing or time consuming registering paperwork, business owners can find some benefit is becoming a sole proprietorship. However, without any legal distinction between you and your business, things can become a bit confusing in the case of litigation.
Doing business as a sole proprietorship puts your personal assets at risk; things like your personal property, bank accounts, and car are not protected during any litigation towards your business.
Many business owners recognize the importance of making a legal distinction between themselves and their business. In these cases, a Limited Liability Company, or LLC, is a wonderful way to protect your personal assets while still operating your business. An LLC is member owned and cannot go public of offer an IPO. Establishing your business as an LLC does require more expense and paperwork than a sole proprietorship, but it offers extensive protection of your personal assets.
Finally, other business owners choose to establish a Corporation either when initially starting their company or once their company grows to require more oversight. A Corporation is owned by Shareholders and can go public or offer an IPO. For many business owners, setting up a Corporation means developing a more formal business plan, organizational chart, and formal reporting process, which can be beneficial for a business in the long run.
Forming a Corporation is the most cost effective, but does require more paperwork that includes having yearly shareholder meetings. However, it can be well worth it to establish these formal practices if it suits your business needs.
Are you wondering which business entity might be best for your new idea or adventure? We love meeting with business owners and entrepreneurs to set them up for success right from the start. Give us a call to set up your free 30 minute consultation; we’ll talk about your ideas and business goals, as well as point you in the right direction for setting up a business entity that will support your plans.
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