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Three factors to consider when choosing your business entity

On Behalf of | Mar 13, 2023 | Business & Commercial Law |

It takes time to navigate the process of setting up a new business. Owners have to make important decisions that could make or break the success of their company. One of the essential decisions they have to make is choosing which entity is best for their business. And each business decision, big or small, comes with certain considerations.

Fundamental factors to consider

While considerations for choosing a business entity vary depending on the industry, some essential factors apply to almost all businesses. These include the following:

  • The number of business owners or partners: Whether solo or two or more, owners can choose to operate a limited liability company (LLC) or corporation. However, solo owners cannot operate a partnership and multiple owners cannot establish a sole proprietorship.
  • Liability: In a sole proprietorship and partnership, the owners are the same legal entity as their businesses. Therefore, owners would be personally responsible for the company’s liabilities. But with an LLC or corporation, partners can be considered separate from the business and therefore cannot be held personally liable for the company’s debts and other credits.
  • Tax: With corporations, not only will the government tax the company revenue, but it will also require owners to pay taxes for their personal incomes. On the other hand, LLC partners are not subject to double taxation as company profits and losses are reported in their individual tax returns instead.

This list is not absolute but provides a basic idea of factors owners must consider when selecting business entities. Each business has unique considerations that might not apply to others but the three factors we mentioned are fundamental in establishing a business.