You have a great idea and you are all excited about starting a retail business of your dreams.
Let us tell you that the journey from a business idea to establishing a business is long and full of challenges.
When you think of starting a retail business, the first question you should address is what kind of business structure suits your needs the best. This decision will have a great impact on your finances, tax payment, and future business expansions.
The 3 most important business structures in the US are Sole Proprietorship, LLC, and Corporation. To choose the appropriate entity, you need to know its features, advantages, and disadvantages.
To help you get started, we will give you a quick overview of all three of these business structures.
Let’s get right to it.
1. Sole Proprietorship
Among all the business entities, Sole Proprietorship is the simplest one to form. If you are planning to start small and don’t wish to have a separate legal entity for your business, this is the most suitable option for you.
A Sole Proprietorship business is owned and run solely by one owner. As a sole owner, you will have all the freedom to make decisions and work at your own pace. Your business will also be exempted from paying corporate taxes.
The downside is that you will be completely responsible for both profits as well as losses and your personal assets may be at risk.
2. Limited Liability Company (LLC)
An LLC is a registered separate legal entity. If you form an LLC you can have two or more partners who share the responsibility of running the business.
LLC brings you the benefits of both a Corporation and a Partnership. Your personal assets are protected, while the business still remains in control of just a few members.
This business entity is the right choice for anyone who is planning on starting a retail business in partnership with a few people or entities.
The paperwork for forming an LLC is more compared to a Sole Proprietorship and you have to pay state fees as well.
A corporation is a legal entity established under state law. It is a more complex business structure than the two discussed above.
A corporation, as a business entity, exists separately from its owners or shareholders. Whether the shareholders leave the company or new owners join, the operations of a corporation are not hindered.
A corporation is an ideal choice for starting a retail business that you are planning to expand and operate from multiple locations. A corporation faces double taxation and has to abide by more extensive regulations.
Have You Chosen Your Business Structure?
We hope you have gained a good understanding of each type of business structure and are ready to choose the right one for your business.
For a better understanding, check out this infographic by GovDocFiling explaining the pros and cons of each business entity. When you make the right decision, you are laying the right foundation for your retail business.