Choose the Right Business Structure for Your Business Plan

A business model is all about how you’ll make money. A business structure determines the form your business will take. Choosing the right business structure for your venture is important because the choice can affect tax liabilities, regulatory requirements, and ultimately the success or failure of a company.

The advantages and disadvantages of different structures

A variety of different business structures exist, each with its own advantages and disadvantages. Taking the time now to consider the best structure for you can avoid problems in the future. Especially if you’re starting a new venture, your business plan should spell out specifics about your proposed business structure. The most common business structures include

  • Sole proprietorship: You, as an individual, are the company.

  • Limited Liability Company (LLC): An LLC is a cross between a partnership and a corporation. A single individual or a group of members can own it with all profits passed through to the members.

  • Cooperative: A cooperative is owned and operated for the benefit of its members. The profits it generates are distributed to those members.

  • Corporation: Corporations, which are the most complex business structure, are independent legal entities owned by shareholders. Larger companies typically use this structure because corporations are legally and financially complex.

  • Partnership: A partnership is a business that two or more people own. There are several different kinds of partnerships, each with its own requirements, including general partnerships, limited partnerships, and joint ventures.

  • S Corporation: S corporations are like corporations except that they receive a special designation from the IRS that allows profits and losses to pass through to the individual owners. The shareholders, but not the business itself, must pay taxes.

Choose the structure that seems most appropriate for your venture.

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Each business structure has its own advantages and disadvantages.

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Get your business off on the right foot

When you start a new business, try to make the best decisions right from the get-go. You can save time and money and avoid a lot of hassle that way. But it’s also worth remembering that businesses evolve and change. You may have to tweak the business model you identify today in the months and years ahead. You may eventually need to adopt a different business structure.

Consider the example of an antique dealer who opened a small shop just north of Boston. She struggled for a couple of years meeting the rent. Finally, she switched from being a sole proprietor to running the shop as a cooperative made up of small dealers who sublet space in her shop.

Your vision as a company may change over time. Just be decisive when you craft a business plan and then remain flexible and open to change.

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