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Choose The Best Business Entity Now For Greater Success Later


Starting a new business is one of the most exciting, and scary, things you can do. On one hand, the thrill of getting a new product or service to market fills the waking hours. On the other hand, a new business owner’s fear of the unknown can be enough to wake them up in a cold sweat. There are an overwhelming number of things to consider when starting a business, and endless decisions after that, but one of the most important is this: What type of business structure will work best for your organization?


There’s a lot of information about different business structures out there, and you could spend months weighing the pro’s and con’s of each one. Our goal with this series is to distill all that information into an easy-to-follow roadmap to help guide you to the right answer for your business.



Why Choosing A Business Entity Type Is So Important


On the surface, a lot of new business owners think picking a business entity type is pretty straightforward, especially if they are setting out on their own. However, like everything else, there are options to weigh the pros and cons of, like whether you’ll be operating as yourself or as part of a group or partnership with others.


The choices you make in the beginning will have long-lasting effects on your business’s future, especially any time you expand your customer base, hire new employees or potentially add new partners. And although no new business owner wants to think about this in the beginning, as Stephen Covey recommends in his book The 7 Habits of Highly Effective People, “Begin with the end in mind.” How you organize your business at the start will impact how you sell or close your business later.



Exploring Different Business Entity Types


There are several ways in which a business can be organized as a legal entity. Let’s start by taking a look at the following:

  • Different business entity types

  • The defining characteristics of each legal entity type

  • Information to consider when making your decision


Before we lay out the main entity structures, it’s vitally important for the business owner(s) to consider how you feel about legal liability, tax implications, and administration/record keeping requirements. Consider the following:

  • How many owners are there? Do I anticipate this number growing in the future?

  • Will the business be owned by individuals or another entity, such as a trust?

  • What are my liability and risk concerns?

  • What will make the most sense when it comes to Federal taxes?

  • How do I envision the management of this business?

  • What do I want to happen to this business when I no longer can run it?


Once you have given some thought to the questions above, use the following table to compare the different options that might best work for you and any applicable partners. Please note that, even if you are the sole owner, you do have options: while the sole proprietor option may initially seem the easiest, if you have strong growth goals over the next one to three years, you may want to consider the Limited Liability Company - Disregarded Entity option (we’ll explore this further in a later post).


Keep this table handy while you go about determining the entity structure that works for you.


Have Additional Questions About Business Entity Types?


As you can see, there is a lot to consider before you decide which entity type you want to form. At Archimedes C&C we are happy to discuss the ins and outs of each business structure, as well as take care of all the paperwork and filing that goes along with establishing your own small business. Watch for future posts on this subject, and reach out to us for more information at info@archimedescc.com.

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