When you start out on your business journey, there are going to be many decisions to make. In fact, it may feel like a never-ending to-do list of business decisions you need to make. Thus is the nature of being an entrepreneur, right? One of the biggest decisions you will make, however, as you start out on your business ownership journey, is how you want to structure your business. Take your time to learn about the different options for structuring your business and consider which structure will best serve you, your business, and your goals.
Choosing a Business Structure
The truth of the matter is that there are pros and cons to each type of business structure. Some of the biggest things to consider when choosing a business are the liability protection you want from the business structure, how you want your business to be taxed, and how willing you are to navigate the red tape associated with establishing and running certain business structures. So, before selecting your business structure, ask yourself the following questions:
- What kind of personal liability exposure are you willing to have?
- How do you want business profits to be taxed?
- How easy or difficult is it to establish the business structure and remain compliant with state law?
Different business structures have different ramifications for the issues these questions handle. For instance, A sole proprietorship is by far the most simplistic business structure and it may be a possible structure for you if you do not have any business partners. In fact, if you do not have any business partners, you are automatically considered to be a sole proprietor without having to set it up as an official business entity. While a sole proprietorship may be the easiest to establish, you are completely exposed to personal liability as you and the business are considered to be one and the same. That means you can be held personally liable for any debts or other liabilities taken on by your business. For tax purposes, you will pay tax on all of your business earnings.
With a limited liability company (LLC), on the other hand, setting things up will be a bit more complicated. You will need to file all necessary documentation with the state, get a tax ID number, get a business name, and more. An LLC is, however, the most common way for a business to be structured for several different reasons pertaining to the many benefits this type of business structure offers. For starters, an LLC offers a shield from business owners being held personally liable for debts and other liabilities incurred by the business. The LLC provides a legal barrier between your personal assets and business liabilities. There is also a significant amount of flexibility granted when you run an LLC. Additionally, LLC structures are eligible for pass-through taxation. Pass-through taxation means that profits generated by the business are passed through directly to the LLC owners without being taxed beforehand.
Pittsburgh Business Law Attorneys
Do you have questions about the best way to structure your business? Jones, Gregg, Creehan & Gerace has answers for you. Contact us today.