Choosing the right entity or business structure for your business from the start will prevent unnecessary hassles in the future.
From the get-go, you want to work under a business structure that meets the unique needs of your retail business in terms of taxation preferences, liability protection, ease of growth, and more.
Let’s look at 5 factors to consider when choosing an entity for your business.
1. Taxation
If corporate taxes and double taxation are a sore point for your retail business, consider starting a Sole Proprietorship or an LLC.
With both business entities, you don’t have to worry about paying corporate taxes. All the income from the retail business passes through to your personal income tax returns, so you’re only taxed once.
However, if you choose an LLC, you’re still required to pay self-employment taxes and other LLC taxes depending on your choice of state for LLC formation.
2. Ability to Raise Capital
Raising capital is important for the survival and growth of any retail business. Your choice of a business entity determines how much capital you can raise and how easily.
Corporations provide the best chances of raising funds. You can issue shares to the public or a group of investors in exchange for additional capital.
The option to issue shares doesn’t exist for LLCs, but you can bring in additional members with funds to contribute.
3. Cost and Ease of Formation
A Sole Proprietorship is the easiest and cheapest entity to form. It’s not a formal business entity. As long as you don’t register your retail business as any other entity, by default, it’s a Sole Proprietorship.
Corporations are the most complicated and costly entities to form. Lots of paperwork is involved. You’ll also need to maintain comprehensive records and hold mandatory annual general meetings.
The formation of a Limited Liability Company requires more paperwork than a Sole Proprietorship, but it’s not as complex as a Corporation.
4. Liability Protection
Sole Proprietorships provide no liability protection. This means that creditors can seize your personal assets to pay off business debts.
Limited Liability Companies and Corporations provide liability protection, but Corporations provide the tightest protection.
5. Ease of Expansion
No one starts a business with no plans for growth.
Although you can open multiple branches of your retail business under a Sole Proprietorship, you can’t operate a franchise.
With LLCs and Corporations, you can operate multiple branches or a franchise.
Start Your Retail Business
Have you figured out the right entity to start your retail business?
Choose an entity that’ll support the growth of your business and make it easy for you to run it. Here is an infographic from GovDocFiling that’ll provide more information to help you make a decision.
