What happens if you choose the wrong structure for your new business, or if you change your mind later? It depends on the structure you choose: Sometimes you can change easily, sometimes it is difficult and costly to change and sometimes you cannot change at all.
For this reason, you should give some thought to the structure before you start your business. Entrepreneur describes some common business structures as well as the pros and cons of each.
Sole proprietorship
There are many types of business structures that you can run as only one person, but a sole proprietorship is the only one that requires it. Under certain circumstances, a married couple may operate a sole proprietorship jointly, but usually, it has only one owner, which is good if you do not want to share the responsibility and decision-making power.
A sole proprietorship is the simplest business structure to set up. Taxes are easy because you just report the income you earn on your personal income taxes. However, there is no legal distinction between an individual and a sole proprietorship, meaning that there is no liability protection.
Limited liability company
An LLC combines the advantages of a corporation and a sole proprietorship or a general partnership, which is essentially a sole proprietorship with two or more people. It offers you both liability protection, also known as limited liability, and straightforward taxation.
Nevertheless, an LLC has its disadvantages as well. Setting one up requires a lot of paperwork. You cannot sell or trade stock in an LLC, and you cannot deduct the cost of benefits to yourself or your employees.
There are several other business structures available to you, each with its own advantages and disadvantages. These are just some of the most common.
