If you’re considering starting a retail business, there are many factors to take into account before making any decisions.
Should you choose a Sole Proprietorship, LLC, or Corporation? How much should you invest in inventory and equipment? Which state will be most advantageous for you?
These are just some of the questions that need to be answered before deciding on which type of entity to use.
In this post, we’ll cover seven key points to keep in mind when choosing your business entity.
The Factors to Consider
Each entity choice comes with its own set of benefits and drawbacks. To help you decide which one is best for your business, you should know what you need. Here are some questions to ask yourself when deciding which entity is best for your business:
1. Do I Need Limited Liability Protection?
Limited liability protection is one of the most common reasons why people choose LLCs and Corporations instead of Sole Proprietorships. Your personal assets won’t be attached in case of a liability on the business.
2. Is Financing Easy to Obtain?
Financing is easier to obtain through a Corporation than an LLC or Sole Proprietorship. You can easily go public or raise funds. However, this doesn’t mean that you won’t find lenders who are willing to lend to other structures, but it may not be as easy.
3. How Much Do I Want to Grow My Business?
If you plan to grow your business over time, then you will want to choose a Corporation or an LLC. When you start a Corporation, you automatically become a shareholder. Shareholders vote on important matters like hiring new employees, buying equipment, and expanding.
If you plan to stay small and focus on growing your current business, then choosing a Sole Proprietorship may work better for you. With an LLC, you still maintain ownership but you don’t have shareholders. However, expansions wouldn’t be as big as those in Corporations.
4. Can I Afford to Pay Taxes?
If you’re starting a new business, then you probably don’t have much cash flow right now. Regarding tax, starting a Sole Proprietorship with GovDocFiling is the cheapest option. It offers pass-through taxation which means that you’ll pay taxes based on your income. You can also deduct expenses related to running your business.
On the other hand, Corporations are subject to heavy taxation. You’ve to pay your income tax and also pay Corporate taxes, which leads to double taxation and makes it costly to run Corporations.
Have You Made Your Decision, Yet?
The decision is in your hand. Which one should you choose that fits the best with your business?
To understand more about the pros and cons of these business entities, you can refer to the infographic below.