When choosing the right structure for your business you should consider the following questions. The answers to these will guide you to a decision. Take time to review your answers, remember this is YOUR business! There is no particular structure that goes with specific types of businesses. For more information visit one of the following pages by clicking on Limited Liability Company, Profit Corporation or Non-Profit Corporation.
- How many owners are there in the business?
- Do I have investors who will own a percentage of the business?
- Will the business have a lot of assets (physical or intellectual)?
- Do I plan to have employees?
- Do I plan to take my company public some day?
- Will I generate a profit the first couple of years in business?
- Do I have other sources of income other than the business?
How many owners are there in the business?
If you plan to have multiple owners in your business you need to consider a Limited Liability Company or S Corporation. If you will have more than 35 owners you should consider a C Corporation.
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Do I have investors who will own a percentage of the business?
If you have investors buying equity in your company, you will want to be a C Corporation.
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Will the business have a lot of assets (physical or intellectual)?
If you have a lot of assets in the business you may want to consider two separate entities, one operating company and one that holds your assets. The one holding the assets could be a LLC or Corporation.
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The most common lawsuits filed against small business owners are from employees. Protect yourself and your company with a Corporation or LLC if you plan to have them.
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Do I plan to take my company public some day?
While making the decision to go public might not be something most people think about right away, you will want to consider it. If you believe you will go public within the first 5 years of the company consider incorporating in the state of Delaware. Delaware has a great system for public companies.
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Will I generate a profit the first couple of years in business?
If you know that you won't generate a profit the first few years in business, you might want to consider a S Corporation or LLC.. Either of these entities will allow you to pass the losses to the individual owners and potentially write-off the loss against earned income.
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Do I have other sources of income other than the business?
If you have other sources of income and don't need the money from the business you might want to consider a C Corporation. The C Corporation is taxed separately and the income isn't added to your current income, increasing the tax rate.
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All of these suggestions are just that, suggestions. You should speak with a competent individual with a few years of experience in structuring to determine which entity is best for you and your business.