A Business-First Approach To The Practice Of Law

What are non-liability reasons to pick a business structure?

On Behalf of | Feb 23, 2022 | Business Law |

Many entrepreneurs who want to create a business have liability protection on their minds. They want a business structure like an LLC that can protect their personal assets from lawsuits. Still, this is not the only reason to pick a business entity. You may have other considerations than guarding your assets against litigation.

Depending on your priorities, you might favor a specific business structure even if it does not offer as much liability protection as other forms of business. Business News Daily describes some factors that may matter to you in deciding how to create your enterprise.

The complexity of the business

Business structures vary from simple to complex. A sole proprietorship offers you the simplest business structure since you are doing business by yourself and can pay business taxes as personal income. If you enter into a partnership, you would sign a contract that defines the roles of yourself and your partner, but the business may still remain simple in form. By contrast, LLCs and corporations are more complex with larger structures and more legal requirements to comply with.

Control over the business

You might want complete control over the business or at least be the primary decision maker. A sole proprietorship or an LLC generally offer someone the most control over a business. By contrast, a board of directors governs a corporation. This kind of structure could make it difficult to exert tight control over the business.

Meeting your business goals

The main goal of your business plan should be to forecast how to grow your business over time. The business structure you choose should meet the goals of your business plan. If you form a business that is not flexible enough to fit your plan, your company might not grow as you expect.

Raising money for your business

Acquiring funding for your business may be easier or harder depending on the business structure. In general, a corporation has the best chance of obtaining capital because lenders see corporations as less risky to invest in. Additionally, corporations can sell shares to stockholders. By contrast, sole proprietors usually fund their operations through personal funding. Converting the business to a partnership, however, might help by securing funding from a partner.

One of more of these considerations may be important to you. You might combine a desire to avoid liability with a goal of raising capital. Any combination of priorities may help narrow down your choices and make it easier to select your business type.