Choosing the right business structure can impact multiple aspects of fo your business from taxation to day-to-day operations.
Here are three business structures you can consider for starting a retail business.
A Sole Proprietorship is a great option for starting a small retail business that is localized to one area.
Here are some of the key features of Sole Proprietorships need to know before set up Sole Proprietorship along with their pros and cons.
- It’s not a separate legal entity separate from its owners
- Profits and losses go solely to the owner
- The owner is completely in control of running the business
- All profits are taxed as part of the owner’s personal income
- Low startup costs
- A quick and easy formation process
- Complete administrative control
- No liability protection for the owner
- Difficult to get funding and expand the business
Here are the key features, pros, and cons of LLCs for starting a retail business.
- It is a pass-through entity that can be taxed as a Sole Proprietorship, Partnership, or Corporation
- Provides limited liability protection to the owners
- Can be owned by one or more members, including individuals and other eligible firms
- Profits and losses are shared among members based on mutually-agreed-upon terms and conditions
- Combines the best features of different structures
- Flexibility in how the members want the firm to be taxed
- LLCs can’t issue shares and go public like Corporations, making it relatively more difficult to raise funding for business expansion
Finally, let’s take a look at the features, advantages, and disadvantages of a Corporation.
- A Corporation is a legal entity completely separate from the owners
- The owners are not liable for the company’s liabilities and debts
- Profits and losses are shared in proportion to the shares held by shareholders
- Corporations can issue shares and go public to raise capital
- Ability to issue shares and raise funding for business expansion
- Complete liability protection for owners
- Costly to form and maintain
- The formation process is complex and requires a lot of paperwork
Which Business Structure Will You Choose?
Compare the advantages and disadvantages of each entity type and then make the right choice for your business plan.
To learn more about each of these, check out the infographic below.
Brett Shapiro is a co-owner of GovDocFiling. He had an entrepreneurial spirit since he was young. He started GovDocFiling, a simple resource center that takes care of the mundane, yet critical, formation documentation for any new business entity