Your Guide to Choosing the Best Business Structure for Your Startup

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No business structure can fit the needs of every company out there, which is why there are several options for you to choose from. The best business structure for your startup depends on your company’s goals. Continue reading better to understand the different business structures available for your startup and help you pick the right one.

 Limited Liability Company

A limited liability company or LLC is a business structure that gives owners more flexibility in their taxes and management. The significance of an LLC is that owners can agree on how their business will be managed through a contract. This flexibility is valuable. But the new contract’s provisions might be less predictable than the corporations’ strict requirements. This can cause a possible conflict between the managers and owners. However, the tax flexibility as well as the personal asset protection that an LLC can provide, is what convinces business owners to form an LLC.

 C Corporation

A C corporation or C-corp is likely the most common business structure chosen in the US. Compared to the other business structures listed, this has been around longer. Publicly traded companies are often C corporations. It’s different from other business structures in terms of paying taxes in that, in a C-corp, the business is taxed separately from its owner.

 S Corporation

An S corporation is a tax election that LLCs and corporations can do when they pay taxes. This structure removes the double taxation issue common in C corporations under the IRS tax code Subchapter S. Under the tax code, an S Corp can pass taxable income, losses, credits, and deductions directly to the shareholders.

 This structure is only adopted by businesses with 100 or fewer shareholders and is often considered an alternative to the LLC.

Partnerships

Partnerships are businesses with two or more owners who share their income and losses. This business structure has three distinct types: general, limited, and limited liability.

General Partnerships

This kind of partnership doesn’t provide liability protection to the owners if they have business debts. So, the owners are solely responsible for the debt.

Limited Partnerships

Two kinds of partners are needed for limited partnerships. The first one is a general partner. They are responsible for the operation of the partnership. The downside is that they don’t have liability protection against the business’s debts.

 The second one is a limited partner. They are passive investors with limited liability. Unlike a general partner, a limited partner is only liable to the extent of their investment.

 Unfortunately, limited partnerships aren’t as common since most people opt for an LLC instead, where both partners are offered protection against liability.  

Limited Liability Partnerships

Lawyers, accountants, and doctors mainly choose limited liability partnerships. In most states, this kind of partnership is only for professionals.

 Here’s an example to better understand the concept of this business structure. For instance, two doctors are business partners. If one doctor commits malpractice, the other doctor is not liable for this, while the other can be sued for damages.

 Most professions exclude professionals from getting limited liability for their misconduct. Instead, the owners are protected from each other and held responsible for their actions.

 

Sole Proprietorships

One of the most basic business structures is a sole proprietorship. Most people have a sole proprietorship without being aware that they have it. If someone is operating a business, their business is a sole proprietorship by default.

Non-Profit Corporations

Many believe that non-profit corporations such as charities and related organizations are mainly for public service. This is because they can be qualified for this by the government. But this business structure isn’t limited to these organizations. A non-profit organization can be created to help one of these three groups: the general public, a particular community, or non-profit organization members. Charities, churches, and country clubs can be qualified for this.

 Co-Ops

A cooperative or a co-op is very different from a regular business. Often, it’s a business wherein co-op members produce and provide goods and services. These members also manage the company, so the business’ goals are focused on their shared benefit. Employees, housing cooperatives, and owners who utilize the services can own co-ops. They usually prioritize societal gain. These businesses are generally supermarkets, credit unions, childcare centers, and apartments, among many others.

 Finally, you know the business structures you can consider for your startup. Regardless of what business structure you opt for your business, it’s recommended to seek help from an experienced mentor or legal expert to make an informed decision.But you need to know and be firm in your business goals, plan, and vision before deciding the best structure to help it grow.

 

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