Last week, this blog discussed how planning is a critical ingredient to long-term success in the business world. Michigan residents seeking to start a new business must plan properly in order to address the challenges they may face.
One crucial step in starting a small business is choosing the right business structure for the business. The type of business structure chosen will have major ramifications, including legal and tax consequences that must be considered when the business is started.
One common form of business is a sole proprietorship, where the individual who runs the company is responsible for the company's assets and liabilities. Accordingly, if someone has a claim against the business, it can go after the individual's assets as well since there is no separation.
By contrast, corporations have limited liability, where the liabilities of the company are limited to just those assets owned by the company. However, there are multiple kinds of corporate structures that can be utilized, each with different advantages and disadvantages.
For example, corporations are typically more complex and larger. Often times, corporations have more employees than other business structures.
A limited liability company combines the liability advantage of a corporation with the operational flexibility and tax benefits of a partnership or sole proprietorship. Accordingly, these are attractive businesses that have grown in use over the years. Other types of companies, like a cooperative, may also be available.
Ultimately, there are several different kinds of business structures, and choosing the right one will be critical. The type of business structure that is right will depend on the circumstances of those involved and what goals they have for the business.
Source: U.S. Small Business Administration, "Choose your business structure," accessed on April 15, 2016
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