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Choosing the Right Business Structure

The difficulties of establishing a business begin at the conception stage an choosing the right business structure. Every decision you arrive at has to be taken with great care because it can make or break the idea you have been cradling. This reality is the very reason why you should have a startup checklist. In addition to a checklist that will help you remember all the things you have to do, it also gravely important to secure the right permits and fill out the right forms when registering your business.

The requirements for starting your business vary greatly depending on the type of business you’re starting. As the US Small Business Administration explains, there are many things to consider when choosing your business structure, and there are pros and cons to every type. We’ll go into them below:

Choosing the Right Business Structure

Sole Proprietorship

The simplest organizational structure that’s applicable to businesses is the sole proprietorship. This form of business allows the owner/s to have total control over their company’s operations. The requirements to registering as a sole proprietorship are an employment identification number (EIN), a fictitious business name (FBN) that abides by the rules of your state, a local tax registration certificate, a permit to sell retail goods and collect state sales tax, and other business-related licenses and permits. The greatest advantage of a sole proprietorship can also be its biggest flaw. As the very individual/s who have total control over the business, owners of enterprises that fall under this category are responsible for their own record keeping and IRS tax payments in the form of self-employment taxes. For example, if your business is registered for Goods and Services Tax or GST, you need to add a certain percentage to your sales price when making sales. Generally, GST refers to the value-added tax on the supply of goods and services. This is paid by the consumers and is remitted by the business supplying them.  

Hence, as the sole proprietor who issues invoices in your usual sales process, you are required to add the GST component of the sale on any invoice you issue. This is where a GST calculator comes into play. It can help you determine the GST inclusive and exclusive prices of your goods and services or the accurate GST rate. With a calculator in place, you can never go wrong with your GST computations, thus reducing the risks of tax problems for your enterprise.  

Besides, it’s essential to know that choosing sole proprietorship as a business structure means having control over the preparation of your tax returns and payment of your tax liabilities. More importantly, full control also means that the owner/s can be held personally responsible for the demise of the company and the resulting financial burden.

Limited Liability Company

This organizational structure, which has characteristics of both a sole proprietorship and a corporation, only requires owners to name their LLC, file articles of organization, create an operating agreement and apply for an EIN. One of the biggest perks of registering your business as an LLC is that it can provide owners with a certain level of security by minimizing personal liabilities. In most cases, the protection that an LLC offers can be likened to that of a corporation wherein the owner/s cannot be held liable for the debts of the business. This is because it is considered as a wholly separate entity. Due to the intricacies of subscribing to this kind of business structure, running an LLC can be a little more expensive than operating a sole proprietorship. The owner/s of an LLC must also take the time to set up a corporate bank account and be meticulous in the way they keep business records.


Corporations come in two different kinds: subchapter C and S. Depending on the kind of you will be going for and the rules that apply in your state, the requirements you have to meet will vary. For S corporations, owners have to have a domestic corporation that has no more than 100 shareholders, and a single class of stock. As for C corporations, the basic requirements are an annual general meeting for the shareholders, issuance of shares to investors as ownership of the business, an appointed board of directors, and assigned positions in the corporation — complete with roles and responsibilities. A corporation may be the most complex form of a business structure but it provides a lot of benefits. These advantages can include perpetual existence, transferability, business credibility, tax benefits and easier access to capital.

In Conclusion

Choosing a suitable structure for your business can be challenging if you don’t know anything about them in the first place. Besides, regardless of the structure you choose, your decision may have significant implications.  

Hence, you must do your research and consider crucial factors to find the appropriate business structure. For instance, the business structure you choose may significantly affect which taxes your business should pay and your personal liability. Another consideration is the industry you’re in. If your business carries a high risk, such as real estate investment companies, an LLC may be the best structure to ensure personal liability protection.

Just like any decision you need to make, make sure that you take the time to properly analyze which structure is best for you. Keep the information mentioned above in mind so you can have a clear idea of which business structure suits your business. small business coach