Launching a business is no easy feat. The Bureau of Labor Statistics reports that 20% of small businesses fail within the first two years. Proper planning is important for success.
Choosing the right business structure is an important decision. Each type of structure has its own benefits and disadvantages, and knowing the differences between them can help you choose the one that is best for your company.
1. Sole proprietorship
A sole proprietorship involves a single individual owning and operating the business. This straightforward arrangement makes decision-making quick and flexible. However, the downside is that the owner bears all the responsibilities and liabilities. Personal assets are at risk in case of any legal issues or debts.
For those looking to share the load and responsibilities, a partnership might be the right fit. Partnerships come in two main types: general partnerships and limited partnerships. In a general partnership, all partners share equal responsibility and liability. Limited partnerships, on the other hand, allow for a division of responsibilities among general partners and limited partners, offering some protection for those with limited roles.
Opting for a corporation provides a separate legal entity, distinct from its owners. This structure offers limited liability, safeguarding personal assets in case of business debts or legal issues. Corporations also have a perpetual existence, unaffected by changes in ownership. However, this structure involves more complex record-keeping and administrative requirements.
Choosing the right business structure requires a thoughtful analysis of your corporation’s goals, size and industry. By choosing the one that best aligns with your business, you can give your startup its best chance of success.