What’s the difference between having a “side hustle” and becoming a full-fledged entrepreneur? Two words: business structure! The moment you choose a legal structure for your company, you are quite literally telling the world that you mean business. But selecting the right structure for your company is no trivial matter.
Fortunately, we’ve provided the 5 most important things worth considering when choosing a legal structure. To find out more, keep reading.
The first thing worth taking into account is the size and complexity of your business operation. The number of people in your workforce and the amount the business is making greatly affect your choice of business structure.
A startup, for instance, may choose to stay as a sole proprietor until its business expands. Sole proprietorship involves a much simpler reporting system that can be taken care of by the owner.
As the company grows and money starts to move in greater quantities and velocity, keeping on top of your finances may become more of a challenge. In this case, a more formal structure might become a more realistic option. Legal structures like an LC or cooperation can provide asset protection as your workforce and clients grow. This brings us to our next point.
The degree of liability is one of the biggest reasons to consider the right legal structure. Closely related to the abovementioned point: as complexity increases, so does risk. Not having the right structure while taking your business to another level might hold you back from taking certain risks. If this is the case, it may be time to say goodbye to the sole proprietor structure and move into a limited liability model.
This ensures that in the event of lawsuits or other types of losses, your personal assets are protected—something not possible with a sole proprietorship.
3. Administration Needs
More formal business structures like trusts and LLCs require more than your average paperwork. Therefore, another thing to consider is whether you can take on the necessary professionals to fulfill the workload. Maintaining a structure like a trust often involves the services of a lawyer or an accountant.
Weighing up the cost of these services may help you prioritize your steps before rashly changing your business formation.
4. Tax Implications
The amount of tax you intend to pay also influences your choice of business structure. For instance, the LLC model allows a larger business to pay tax as a sole proprietor, considering your profit as personal income. Other formal structures have their own specific tax implications. So doing your homework with resources like this article will help you make a more informed decision.
5. Think Long Term
Considering the lifespan of the business will also help you to see how your business structure is set to evolve. If you’re looking to keep your business as a modest pursuit to put food on the table, a sole proprietorship may be the best bet. But if you’re thinking to set up your business to leave it behind as a legacy for your family, for instance, incorporating your business will ensure its longevity if and when it’s out of your hands.
Which Legal Structure Is Right for You?
The legal structure can make or break your business, so choose wisely. But with the information in this article, you can prepare yourself to take action. knowing how to choose a business structure will help you to map out a deliberate plan of attack and help your company grow to prosperity.
So, the key here is making the most of the right resources and information. Thankfully, you’re in the right place! So, stick with our site to learn more about becoming a successful entrepreneur.