When you're starting a business, one of the first decisions you'll need to make is what legal structure to choose for your company. This is a big job, as there are several different options available, each with its own set of pros and cons. The good news is that there's no "one-size-fits-all" answer when it comes to choosing a business structure. The best decision for your company will depend on a variety of factors, such as the size and scope of your business, your plans for growth, and the amount of risk you're willing to take on.
In this article, the Marshall Area Chamber of Commerce breaks down the different types of business structures available to startups as well as some factors you'll need to take into consideration when making your decision. We'll also provide some tips on how to register your business and stay organized throughout the process.
Business Structures to Consider
There are four main types of business structures available to startups: sole proprietorships, partnerships, limited liability companies (LLCs), and corporations. Let's take a look at each one in more detail:
A sole proprietorship is the simplest and most common type of business structure. In this structure, there is only one owner who is responsible for all aspects of the business, including liabilities and taxes. Sole proprietorships are easy to set up and require minimal paperwork. However, they also have some drawbacks — namely, that the owner is personally liable for all debts and losses incurred by the business.
A partnership is similar to a sole proprietorship in that there are two or more owners who are responsible for all aspects of the business. Partnerships can be either general or limited. In a general partnership, all partners are equally liable for the debts and losses of the business; in a limited partnership, only some partners have this liability. Partnerships can be complex to set up and usually require more paperwork than sole proprietorships. However, they offer some advantages over sole proprietorships, such as access to more capital and expertise.
Limited Liability Companies (LLCs)
An LLC is a type of hybrid legal structure that offers both the limited liability protection of a corporation and the tax benefits of a sole proprietorship or partnership. In an LLC formed in Minnesota, owners are not personally liable for debts taken on by the business; instead, only the assets of the LLC itself are at risk. LLCs can be complex to set up and usually require more paperwork than sole proprietorships or partnerships; however, they offer significant advantages in terms of liability protection and taxation. You can simplify the process of LLC formation by working with a budget-friendly agency — ZenBusiness will currently file your LLC for free other than Minnesota’s required fees.
A corporation is a legal entity that is separate from its owners — in other words, shareholders are not personally liable for debts incurred by the corporation. Corporations offer many advantages, such as limited liability protection and access to capital; however, they also have some disadvantages, such as higher taxes and greater complexity.
Depending on the structure you choose, you may be regularly reporting to shareholders through quarterly or annual reports. To make creating and revising these documents easier, use a PDF extraction tool. They are free and easy to use, and they will allow you to pull specific pages from past reports and replace them with current data so that all information is up to date and looks professional.
What to Keep in Mind When Choosing a Business Structure
Now that we've looked at the different types of business structures available to startups, let's take a look at some factors you'll need to consider when making your decision:
The size and scope of your business
Your plans for growth
The amount of risk you're willing to take on
The level of control you want over your business
The amount of paperwork you're willing to deal with
Your tax obligations
Your liability exposure
Registering Your Business
Once you've chosen a business structure for your startup, you'll need to register your company with the state in which you plan to do business. The registration process varies from state to state; however, most states require businesses to file articles of incorporation or organization with the secretary of state's office. You'll also need to obtain any licenses or permits required by your city or county before you can begin doing business.
Staying Organized Throughout the Process
One final tip we have for entrepreneurs who are in the process of starting their own business is to stay organized throughout the entire process. This means keeping track of important deadlines (such as filing deadlines), maintaining accurate records (such as financial records), and staying up-to-date on changes in laws or regulations that could affect your business (such as changes in tax laws).
Know Your Options
Choosing the right business structure for your startup is an important decision that should not be taken lightly. There are several different options available, so it's important that you take the time to evaluate all of your choices before making a decision. Once you've chosen a structure for your company, you'll need to register your business with the state in which you plan to operate. Finally, remember to stay organized throughout the entire process to make launching and running your business go more smoothly.