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How to choose the right business structure

On Behalf of | Oct 3, 2023 | Business Law

The Oklahoma Department of Commerce reported 29 29 new companies in the state with 77 existing businesses planning expansions in 2022. With business booming, you may feel it is the right time to start your own company.

Before you can begin the process, you will have to decide which business structure best suits your plans. Making this decision requires careful consideration and information gathering.

Business structure options

Before making a decision, you should know about the various business structures available. The most common options include sole proprietorships, partnerships, limited liability companies and corporations. Each structure has its own set of advantages and disadvantages, so you will want to research each of them.

Liability protection

Consider the level of personal liability you are willing to assume. Business structures such as sole proprietorships and partnerships offer little to no personal liability protection. On the other hand, LLCs and corporations can shield personal assets from business debts and lawsuits, providing you a layer of security.

Tax implications

Different structures have varying tax treatment. For example, sole proprietorships, LLCs and partnerships typically pass through business income to the owners’ personal tax returns. Corporations may face double taxation, where the government taxes the company’s profits at the corporate level and the shareholders’ dividends at the personal level.

Ownership and management flexibility

Consider how you want to structure ownership and management. Partnerships and LLCs offer flexibility, allowing you to tailor the structure to your specific needs. Corporations, on the other hand, have a more rigid management structure with a board of directors and officers.

Funding and growth goals

If you plan to seek outside investors or eventually go public, a corporate structure may be more suitable. Corporations can issue different classes of stock and attract investors more easily.

Your business structure may need to evolve as your business grows. Some structures, like sole proprietorships or partnerships, are easier to change later if needed. Others, like corporations, may require more complex processes to change the structure.

Administrative burden

Think about the administrative responsibilities associated with each business structure. Sole proprietorships and partnerships typically have fewer formalities and paperwork requirements than LLCs and corporations. Consider your comfort level with handling these obligations.

Selecting the right business structure is a pivotal step in launching and managing your business. Remember that each business is unique, so take the time to assess your individual needs to ensure you make the best choice for your venture’s future.