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15 Considerations for Choosing the Right Business Entity

Malik Runswick June 8, 2022

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There are many different types of business entities, and choosing the right one for your business can be a complex decision says Samir H Bhatt.

Here are 15 factors to consider when making your choice:

1. The type of business you’re in:

Some businesses are better suited to certain types of entities than others. For example, manufacturing businesses may do better as C corporations, while service businesses may do better as S corporations.

2. The legal liability of the business:

The type of entity you choose will determine the amount of personal liability you have for the debts and obligations of the business. For example, sole proprietors and partners are personally liable for the debts of their businesses, while shareholders of a corporation are not.

3. The tax liabilities of the business:

The type of entity you choose will also determine the taxes you’ll have to pay. For example, C corporations are subject to corporate income tax, while S corporations and LLCs are not says Samir H Bhatt.

4. The amount of money you have to start the business:

Different types of entities have different requirements for how much money you need to start them. For example, sole proprietorships and partnerships can be started with very little money, while corporations require more significant investment.

5. The number of owners:

Different types of entities allow for different numbers of owners. For example, sole proprietorships can only have one owner, while partnerships and corporations can have multiple owners.

6. The geographical location of the business:

Different types of entities are subject to different laws, which can vary depending on the state or country in which the business is located explains Samir H Bhatt. For example, LLCs are only available in certain states, while S corporations are only available in the United States.

7. The type of business relationship you want with your co-owners:

Different types of entities define the relationships between owners differently. For example, sole proprietorships and partnerships are generally more informal, while corporations are more formal.

8. The level of control you want over the business:

The type of entity you choose will determine how much control you have over the business. For example, sole proprietors have complete control over their businesses, while shareholders of a corporation have less control.

9. The degree of flexibility you want in the ownership structure:

Different types of entities offer different degrees of flexibility in their ownership structures. For example, corporations can have different classes of stock with different voting rights, while LLCs can have different classes of membership with different rights and responsibilities.

10. Your exit strategy:

Samir H Bhatt says the type of entity you choose will affect your ability to sell or transfer your interest in the business. For example, sole proprietorships and partnerships are generally more difficult to sell than corporations, because there is no easy way to transfer ownership.

11. The need for raising capital:

Different types of entities have different requirements for raising capital. For example, corporations can sell stock to raise money, while sole proprietorships and partnerships generally cannot.

12. The need for employee benefits:

Different types of entities offer different options for employee benefits. For example, sole proprietorships and partnerships generally do not offer health insurance or retirement plans, while corporations can offer both.

13. The need for continuity:

Different types of entities have different rules for how they can be continued after the death of an owner says Samir H Bhatt. For example, sole proprietorships generally end when the owner dies, while corporations can be continued by the shareholders.

14. Your personal preferences:

There is no right or wrong answer when it comes to choosing the type of entity for your business. It all comes down to your personal preferences and the needs of your business.

15. The advice of your attorney or accountant:

When it comes to choosing the type of entity for your business, you should always consult with an attorney or accountant to get professional advice.

Conclusion:

There is no one-size-fits-all answer when it comes to choosing the type of entity for your business says Samir H Bhatt. The decision depends on a variety of factors, including the amount of money you need to start the business, the number of owners, the geographical location of the business, the type of business relationship you want with your co-owners, the level of control you want over the business, and your exit strategy. You should always consult with an attorney or accountant to get professional advice before making a decision.

 







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