You've had years of experience as an employee in a certain field, or perhaps you were struck by a moment of inspiration and came up with a product or service that no one else in the area currently offers. Now you're ready to strike out on your own and start a business. The only problem is that the whole process seems overwhelming. Where do you even start?
The good news is that business formation doesn't have to be intimidating if you have the right help with the process. Every business is as unique as the person who decides to start it, so there is no one-size-fits-all solution for business formation. Depending on the field you're pursuing and your business goals, there are different kinds of business entities that you need to consider.
Should you file for sole proprietorship?
Careful planning at this early stage is critical for the future success and growth of your business. You need to consider both your immediate needs, as well as your hopes and plans for the future. For many people starting their first business, a sole proprietorship is their first preference as to the form the business takes. There are advantages and disadvantages to this particular business model.
In a sole proprietorship, the whole company is owned and run by one individual. There is no legal difference between you and your company. Because it is the simplest form of business, it is also the most common. However, you are personally responsible for all debts and liabilities from your business, which could be an issue if it fails. Worse, you could end up losing personal assets due to debt or any lawsuits your business may face in the future. There are similar benefits and issues with partnerships, as you and your partner will be liable for debts and losses but will also retain more control.
Incorporation may be a good idea, depending on your goals
While sole proprietorship may give you more control over daily operations, forming an limited liability corporation (LLC) is also a viable option. Incorporation of your business gives you protection against the debts and other liabilities the business develops over time. Even if you are the sole owner of the business, you can still create an LLC for your business.
The benefits associated with LLCs are substantial for some business models. There may be tax benefits, depending on the amount your business makes in a year. There is also an added layer of protection for you, the owner, and your personal assets in the event of a lawsuit or debt from the business. Depending on the size, scale and plan for your business, an LLC could be a good option. You will need to carefully consider your plans when choosing the form your business should take.