Crafting Your Business Foundation: 6 Tips For Selecting The Perfect Business Structure
by Barsha Bhattacharya Business Development 08 November 2023
Your business’s legal and organizational structure can play a significant role in defining the next steps of your business strategies.
For example, about 1,611,236 C Corporations were filed in the IRS in 2015, and 25,226,245 sole proprietorships were filed in the same year.
When you go for a steady business structure, you can be sure that your company will work well.
So, here are some useful tips and tricks on choosing the right business structure without going through any hassle!
1. Legal Structure
Selecting the appropriate legal structure during company registration is a crucial decision that directly influences your business’s growth potential. It’s imperative to align this choice with your business plans and objectives. Each legal structure offers unique advantages and limitations, so it’s essential to reevaluate your goals and ensure that the selected structure accommodates your current needs and paves the way for future expansion. Making the right choice during company registration ensures that your business can thrive and grow unhindered, adapting to changing circumstances and opportunities.
2. Check The Personal Risks Involved
When you’re running a business, you will have some personal risk. But the level of that risk is what matters the most.
As an owner, you would do anything to protect the financials and the company’s future.
Therefore, when there is a partnership, the risks are divided among all the partners.
Moreover, companies and LLPs are responsible for protecting the liabilities of the owners.
But if you are a sole owner and wish to limit the personal risks to a minimum, then you can go for a Start-Up, where the complete ownership will be yours.
3. Consider The Complexity
No business model is complexity-free, but some models can help you reduce confusion.
For example, in the sole proprietorship model, you can simply register your name, start working on the business, check your profits, and pay the due taxes in the given period.
However, in this model, procuring funding from external sources can often take a lot of work.
On the other hand, partnerships are signed agreements among the involved parties, where everyone has agreed to a fixed amount of the profits and sales.
4. See The Control Over Business Decisions
As a business owner, you would want to have considerable power over the decisions being made in the company.
Again, the partnership in the decided model will give you a fair idea of who has the most say in the company’s future.
Therefore, partners are the ones who decide the rights and responsibilities throughout the company.
The Directors have complete control over the business, which is why, in most companies, the directors are the biggest shareholders.
This can also work in a one-person company model. But undivided control occurs only in proprietorship.
5. Be Aware Of The Liability
Ideally, a corporation model carries the least liability since the law claims it is its own entity.
When the company is underperforming, creditors can sue the corporation but can’t take ownership of any personal assets that the officers or shareholders have contributed.
An LLC model also offers the same benefits. But here, you can also enjoy additional tax benefits accompanying the sole proprietorship model.
However, in a partnership, the liabilities are divided among the different partners as per the agreement.
6. See Your Ability To Raise Funds
No matter what kind of business model you have, you need to get your hands on enough funds to run the company.
If the company aims at a high growth rate, it will require large funds at different stages. So, the ability to attract investors is important.
You should know that investors and banks will always prefer to lend their money to more structured companies since they are said to be safer investments.
However, if you have a private company, you can still approach VCs or Angel Investors due to equity ownership.
In conclusion, when it comes to choosing the ideal business structure during company registration, these six tips are invaluable. Understanding your business, assessing liability, considering tax implications, planning for future growth, examining decision-making processes, and seeking expert advice are all essential factors in making an informed decision. By heeding these guidelines, you can set your business on the right course for sustainable growth and success.