Which business structure is right for my start-up?

On Behalf of | Oct 26, 2023 | Business And Commercial Law

The rate of startups in 2021 increased by almost 10%. This translates to over 476,000 new startups and indicates a strong market as well as one that will likely continue to grow in coming years.

Is it all good news for start-ups?

It is important to point out that there was also a rise in business bankruptcies during the same time period. The Economic Interest Group provides an interesting analysis of the role the pandemic played in the creation and destruction of these types of businesses. Ultimately, the group explained that there are two likely scenarios, both positive. First, that the rise and fall of start-ups are in balance, and the pandemic has resulted in a reallocation of resources contributing to more productive business endeavors. Second, the startup rate will soon outpace the closure rate, and the surge will show an increase in the nation’s support of entrepreneurship.

What should I know before beginning my own start-up?

If you are looking to move forward with your own start-up, you likely have many questions. One of the more important involves how to structure your business. There are many different options, but the more common include:

  • Sole proprietorship. The most common and easiest to establish, a sole proprietorship, involves the entrepreneur and the business, and that’s about it. Unfortunately, it does not come with liability protection or tax benefits. This means the owner is responsible for both.
  • Partnership. This structure is similar to a sole proprietorship but with two owners.
  • LLC. A limited liability company (LLC) provides, as the name implies, some form of liability protection to the owners. The business structure takes on some of the risks associated with running a business, helping to shelter the owner’s personal assets.
  • Corporation. This form offers the highest level of asset protection. There are many types of corporations. Entrepreneurs can choose the one that best helps them meet their goals, whether they be tax benefits or investment options, to name a few.

The above provides a good starting point for further discussion. Those looking to move forward are wise to seek legal counsel to help better ensure their choice is tailored to their business interests.