The legal structure of your business will affect your relationships with investors, the government and even your creditors. Therefore, you need the proper business structure that meets your business needs.
When choosing your business structure, it is necessary to understand the pros and cons before making the call. Here are some of the factors you should consider.
The costs involved
If you are a small business looking to grow, a corporation may not be the best structure, given the cost and paperwork involved. A sole proprietorship is the cheapest legal formation since it does not require much paperwork, and you have complete control of the business. You can easily set shop and get going in a matter of days, although there are some downsides.
The liability of your business
Is your business a separate legal entity from you? If it is not, creditors can claim your personal assets if the business owes them money. You may lose your home or vehicle due to business debts if you run a sole proprietorship. However, it cannot happen with a limited company due to the legal distinction between a business and its owner.
Every business must pay taxes. However, the structure of your business determines the tax regime that will apply. You can minimize taxation and save money by structuring your business right.
Adapting to changing times
It is possible to restructure your business along the way if need be. You could start with a sole proprietorship or a partnership and grow into a corporation. However, restructuring a business comes with various financial and legal effects that you should anticipate.
When choosing the ideal structure for your business or making a change, it is advisable to have an informed evaluation of the prevailing circumstances. It will help you make the best choice.