What kind of legal structure is right for your business? Sole proprietorship? Limited liability company? C-corporation? Partnership? Does it matter that much anyway? Well, in some ways, which structure you choose is a bit of a crapshoot. You have to make an informed decision, but as your business gets going, you may decide that a different legal structure would be more advantageous.
Luckily, the internet makes it fairly easy to research the pros and cons of different business structures. Once you've done your homework, you can use an attorney specializing in small business to set up your company. (Average costs for a basic setup can run you between $1200 to $1500, plus filing fees.) Or, if you are confident that you understand all the ins and outs, you can use an internet-based filing service like LegalZoom.com to set up your company.
Here are five factors that can be affected by the specific legal structure you choose (these are based on U.S. law):
1. The amount of time and money it will take to set up the structure. Some are more expensive, and complicated, than others.
2. The amount of taxes you will need to pay to run your business, including state, federal, Social Security, Medicare, etc.
3. Your liability, that is, whether your personal assets can be used to satisfy a court judgment or business debt.
4. Who can invest in your company.
5. How much control you or others will have in running the business.
Here are some sites that I found very helpful when setting up my business:
-FindLaw for Small Business' Incorporation and Legal Structures section.
-BizFilings.com. They have a section where you can compare different structures.
Other reputable do-it-yourself legal sites you might be interested in are:
-LegalZoom.com. An online legal documentation service, cofounded by attorney Robert Shapiro.
-Nolo. They sell legal and business books, forms and software.
Finally, Inc.com provides a compilation of articles relevant to choosing a legal structure for your business. Some of the articles are a few years old but the information is still pertinent. Check out the story about an entrepreneur who went through three different corporate forms in her first five years of operation.
Your best bet is to hire a local attorney who specializes in business formations and business law. But if you can't do that, make sure you understand as many of the implications of your choice as possible, especially factors #2 and #3 above.