Deciding how to structure your start-up is one of the most crucial decisions you face when diving into a new business venture.
Businessdictionary.com defines a business structure as an organization framework legally recognized in a particular jurisdiction for conduction commercial activities.
But to keep the issue simple, we will define a business structure simply as a framework to make sure your business runs smoothly — both financially and legally — because how you structure your business has a direct impact on your tax returns.
Business structures can differ by state, but for the most part there are five common forms to consider:
- Sole Proprietorships. The most common, a sole proprietorship is a business owned and operated by one individual. Although this can be risky, because you put your personal assets at stake, it is the easiest for start-ups due to its simplicity.
- Partnerships. Somewhat self-explanatory, a partnership is a business run by two or more people, and profits and losses are split proportionately.
- Corporations. A corporation is independent from its owners, unlike the previous two options. Although a corporation is a more expensive business structure, it offers the opportunity to raise money through stocks and other financial sources. A major benefit of a corporation entity is liability protection, meaning the company’s debt is not tied to the owners.
- S Corporations. A small corporation, otherwise known as an ‘s’ corporation, is similar to a corporation, however it is more attractive to small-business owners and still provides the liability protection of a corporation.
- Limited Liability Company (also know as an LLC). As of late, LLCs have been a popular choice, especially among start-ups. This option was created to provide owners liability protection, like that of corporations while eliminating double taxation.
No matter what industry you may be involved it, it is critical to be aware of the differing entities and what each option means.
Specifically speaking fashion, an LLC or perhaps a sole proprietorship business structure may offer the best-case scenario. Both options are start-up friendly and provide benefits that are attractive to independent for small business owners.
There is an abundance of information on the differing business structure options, however what matters most is what makes sense for your business.
When starting your own business, the wealth of information available about business structures can be overwhelming. Your best bet is to keep matters simple and stick to the basics, and ask yourself some key questions.
- What benefits are you looking for?
- What tax policies and legal implications make the most sense for your operations?
Although the fashion industry is unique, the business guidelines are similar, regardless of what your business does.