Are you thinking about starting a business? If so, then you’ve got a lot of decisions ahead of you. Sure, you’ll need to think about what industry you want to get into, but you’ll also need to consider who you’ll hire, where you’ll secure your products and equipment, and where you’re physically going to locate your business. Before you get to all of that, though, you’ll need to consider what type of business structure you want to utilize. Although that may seem pretty technical, your decision can have pretty significant ramifications on the future of your business.
Many people choose to create a sole proprietorship. This business structure is appealing because it is easy to create and, should the time come, close. To start a sole proprietorship, an individual simply needs to come up with a name, acquire the proper licenses and permits, and set up shop. No filings with the government are needed, and, unlike a corporation, no ongoing reports are needed. Taxation is simple, too, given that a sole proprietor need only pay personal income taxes on any profits derived from the business. Another draw of the sole proprietorship is that it leaves an owner with full control over the business.
But the sole proprietorship structure comes with its disadvantages. One of the biggest is the fact that the owner is personally liable for all debts stemming from the businesses operations. So, if a contract is breached or a sole proprietor is sued, then he or she may need to dig into his or her own pockets to pay if the business itself is unable to cover. Therefore, if the business starts to falter, a sole proprietorship can lead to a devastating personal financial situation. Another issue with this type of business structure is that it is often more challenging for business owners to secure the capital they need to get their business up and running on solid financial footing.
Of course, there is no cookie cutter approach to business formation. Each business owner has to assess the specific circumstances surrounding his or her business, considering the advantages and disadvantages of the business structures at their disposal. This may sound confusing or overwhelming, but skilled business law professionals stand ready to help guide business owners through the process so that they can start down a path toward success.