Are you gearing up to turn your unique business idea into a successful business?
Great!
One of the first decisions you have to make when starting a retail business is to choose the best legal entity for it.
Why does this decision matter?
Your choice of business structure is the basis for several other business-related decisions. The process of registration, paperwork, finance options, tax payment, forex trading course and more will depend on it.
Your business plan, requirements, and goals should all be kept in mind while choosing a business structure for your retail business.
In this post, you’ll find three of the best entities for starting a retail business – Sole Proprietorship, LLC, and Corporation. By providing you with this understanding, we want to help you choose the best.
Without further delay, let’s get started.
Types of Business Structures
The first step towards choosing the best business structure is to learn about them and understand their pros and cons.
Let’s get started with it.
1. Sole Proprietorship
A Sole Proprietorship is the easiest type of business to form. A single owner is responsible for forming, managing, and taking care of the day-to-day operations of a sole proprietorship. Remember, this business is not independent of its owner.
The biggest advantage of being a Sole Proprietor is that you are your own boss. If you are starting out small or experimenting with a unique business idea, a Sole Proprietorship is the most appropriate choice for you. It is the ideal option for low and medium-risk businesses like artisan shops, bakeries, boutiques, etc.
The owner is liable for the profits and losses of the business. He pays personal income tax for the profits that the business makes. That being said, one of the biggest risks of Sole Proprietorships is that the owner’s personal assets are not protected against debts or losses incurred by the business.
Usually, a Sole Proprietorship does not have any investors and does not need to pay corporate taxes.
2. Limited Liability Company (LLC)
It is a hybrid between a Sole Proprietorship and a Corporation. It is fairly easy to form an LLC as there is less paperwork. There could be single or multiple owners. The owners of an LLC, called the members, can be individuals or corporations.
LLC owners have operational flexibility and share the profit among themselves, similar to partnership owners. But in an LLC, the owners have limited exposure to liabilities. In other words, the personal assets of the owners can not be seized to pay for business debts or claims.
One of the major benefits of an LLC is that it is considered as a “pass-through entity” while paying taxes. Such businesses are not subjected to double taxation.
As an entrepreneur, you might consider an LLC for starting your retail business because of the multiple benefits and the enhanced security it offers.
3. Corporation
A Corporation is the most complex legal entity operating under state law. The law considers a Corporation as an independent entity, separate from its owners. It has legal rights, can be sued, and will continue to exist even after the death of its owners.
The stakeholders are the owners of a Corporation who are protected from liabilities and do not participate in the decision-making process. The board of directors and employees are responsible for managing day-to-day activities.
Forming a Corporation is a complex process with extensive paperwork and regulations. This entity is subjected to double taxation.
A corporation may not be a suitable option for small businesses or startups but is the best option if you want to scale your business and expand to multiple locations.
Which Business Structure is Best for Your Business?
Are you clear on which business structure you want to adopt for your retail business? Do you still need some clarity?
Then this infographic by GovDocFiling will prove to be of great help for you. Check it out to understand the pros and cons of each legal entity and compare them to make the right choice.
Author Bio:
Brett Shapiro is a co-owner of GovDocFiling. He had an entrepreneurial spirit since he was young. He started GovDocFiling, a simple resource center that takes care of the mundane, yet critical, formation documentation for any new business entity.
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