business partners discussing business structure

Selecting the Right Business Structure

When you start a business, it can be an exciting time, but also one filled with important decisions to make that will impact your business for the indefinite future. One such decision will be how to structure your business. There are a number of significant factors you should take into account when you are selecting which business structure may be best suited to your business needs and goals. Here, we will go through some of those factors you should consider when selecting the right business structure.

Selecting the Right Business Structure

The type of business structure you select can have substantial consequences on a number of aspects of your business. When evaluating your business structure choices, consider the legal and financial implications, as well as the operational requirements that will be placed on your business as a result. In choosing your business structure you should consider things like:

  • The ease or difficulty in setting it up
  • The fees
  • The taxes
  • The ability to make an exit from the business, if the need should arise
  • The growth potential
  • The personal liability you could be exposed to

Taxes should be a prominent consideration in evaluating your business structure options. Different business entities are taxed differently and business owners must be prepared to meet all tax obligations at the federal, state, and local level in order to remain in good legal standing. For instance, a sole proprietorship is taxed at the personal level because the business owner and the business are considered to be one and the same for tax purposes. Of course, the downside of this is that the business owner becomes personally liable for all business liabilities and losses. An LLC, on the other hand, requires the owner to file separate tax forms for the LLC and the owner and the LLC are considered separate entities for liability purposes as well.

Personal liability is an important consideration and so we will speak more on that. Understanding the level of liability protection, or lack thereof, you will receive from a business structure is critical in selecting the right business structure. With a corporation, LLC, limited partnership, and limited liability partnership, different levels of personal liability protection are offered. In an LLC and corporation, only the entity itself is susceptible to a lawsuit. The owners and officers of the business are shielded from this. With a limited partnership, on the other hand, limited partners enjoy personal liability protection regarding debts of the company. This protection, however, only extends as far as the amount the limited partner has invested in the company. General partners in a limited partnership have no liability protection. Some limitations on a general partner’s liability exposure can be created through using a corporation or LLC acting as a general partner.

You should also consider your business industry in selecting the right business structure. Some industries carry a higher inherent risk. In these higher-risk industries, it can be even more important to consider your exposure to personal liability. You will also want to consider whether you want the flexibility and ease of maintenance offered by some business structures, such as partnerships.

Pittsburgh Business Law Attorney

At Jones, Gregg, Creehan & Grace we are here to help guide you through these important business decisions. We want to help you set your business up for success. Contact us today.