3 mistakes that businesses make when choosing an entity type
One of the first and most crucial decisions a new business owner makes is the choice of legal structure or entity. It’s a good idea to understand all of the types that could be appropriate for your business and what they offer – not just in the near future but for your long-term goals.Without sound guidance, new business owners can make costly mistakes when choosing their legal structure. Let’s look at just a few of those.
Not choosing the type that’s appropriate for your business
Some new business owners like the idea of having a limited liability company (LLC). As the name suggests, it limits owners’ personal liability. However, it may not be the best structure for your business. For example, it can come with higher taxes than some other structures.
Not being clear about what you want to accomplish with your business structure
All legal structures have pros and cons. That’s why it’s critical that you look at which one will better allow you to accomplish your goals. Things to consider include:
- Liability
- Operational control
- Taxes
- Whether outside capital is needed
- Licensing requirements
It’s important to consider the advantages and disadvantages of multiple types of legal structures based on your plan for the business before you choose one.
Not being open to changing the structure
While changing your structure isn’t something you want to do on a regular basis, it may be necessary once you’re up and running and seeing some success in order to grow, possibly to be able to step away from the day-to-day headaches of the business one day and to bring in fresh capital and decision makers.The best plans often have to change based on unforeseen circumstances. Whether you’re starting a business or contemplating changing your legal structure, it’s wise to have sound legal guidance to help you better weigh your options and make the best choice for your company.