While you are all set to choose a business form for your company, there are several variables that you have to consider like the plans for future, the cost of starting a business, to name a few. There are many businesses which alter their legal structure with the ongoing change in business conditions like considerable growth of business or merger and acquisition. If you’re not aware of the few important issues that you have to take into account while choosing a legal structure for your business, here’s help for you. Check out the main factors to consider.
It is true that you can set up either a general partnership or a sole proprietorship at a very cheap cost indeed. A limited liability or a limited partnership company are pretty costly when it comes to setting up a business. On the other hand, setting an S-corporation can indeed be a costly process. So, you have to take good care of your business finances and then choose the business entity.
#2: Ease of setting up the business
A sole proprietorship is pretty easy to set and there are times when all you need to do is to open a business checking account. In a very similar manner, a general partnership is also pretty easy to set and though a partnership agreement is something which partners should design before starting operations. A limited liability and partnership and a corporation usually has more work to do. You have to abide by the state requirements lest you lose the benefits that the specific legal entity offers.
#3: Public information
How much detail do you want the public to know regarding your business finances? A corporation has to give enough information to the state and this is later on given to the public. This is not the case with limited partnership or Limited Liability Company (LLC). General partnerships and sole proprietorships offer more privacy to the individuals who are involved directly.
There are some business entities which automatically cease to exist on situations like death of a partner, withdrawal of a partner or even due to a divorce. There are few businesses which are permitted to exist only for a definite time period.
#5: Risk that has to be dealt with
If the business that you have chosen has involved too much of risk, opting for a sole proprietorship can also have a bad idea because the general partners are liable personally for business obligations and debts. So, you have to definitely consider the risk factor before choosing a legal entity for your business.
#6: Capitalization factors
If yours is an undercapitalized business, this may lead to enough loss of protection as offered by the business entity. Moreover, there are few business forms which make it simpler to increase capital whenever it is required.
Therefore, if you’re someone who is all set to set up a business, make sure you take into account the above mentioned factors. Make sure you take an informed and measured decision.