MBT | McKay, Burton & Thurman, P.C. | Attorneys At Law

3 factors that influence which business structure is best for a venture

On Behalf of | Dec 18, 2023 | Business Law

Starting a new business means taking total responsibility for an organization’s development and future. It also means that the aspiring entrepreneur has to make some very challenging choices and engage in very thorough planning. Someone who is hoping to start a business needs to investigate the market, obtain appropriate investments, develop a business plan and formally start the company. The process of beginning of business also requires the selection of a specific business structure.

Some people opt for sole proprietorships, which allow them to maintain direct personal ownership of the business. Others start a partnership. There are also more structured and formal business entities, including limited liability companies (LLCs) and corporations. Before people can make an informed decision about what type of business they should start, they need to contemplate the following considerations.

The risks involved

Certain types of businesses are far riskier than others. Quite a few restaurants fail in their first months because they require so much ongoing investments and can take a long time to develop a customer base, for example. The risk of the business failing and the possibility of liability might make a more formal, structured business type the best option.

Five-year goals

All too often, entrepreneurs make the mistake of prioritizing expediency and convenience when starting a business above anything else. They may then come to regret their prior decisions because they need to restructure their business or can’t take steps that could prove financially beneficial for the organization. Particularly if people have plans to sell the business or expand it significantly, they may need to invest more time and effort in the process of starting the company so that the transition to new ownership or the expansion into new markets is easier to achieve.

Income and taxation considerations

Every different type of business has unique rules regarding tax obligations. Entrepreneurs generally need to consider how much revenue they believe the organization could generate and what tax implications its success could create. The tax deductions and exemptions available differ depending on the type of business someone starts.

It can be very difficult for someone in the honeymoon phase with a new business concept to fully explore the idea of formation and to make the best decision about structuring that business accordingly. Getting an outside perspective by seeking legal guidance could help entrepreneurs make the right choices given their ambitions.