Every entrepreneur needs a solid business plan to build and grow a business.
One of the first elements of a business plan is choosing your business structure.
Types of business entities
There are five common types of business entities:
- The sole proprietorship is the simplest. A single owner is in charge of all debts, profits, and operations.
- In a partnership, two or more people have ownership of the business. In a general partnership, partners share equal responsibility. In a limited partnership, one individual controls the business. The other partner contributes financially and collects their share of the profit.
- The limited liability company is the most common. It protects the owner’s personal assets in the event of a liability lawsuit.
- There are many forms of A corporation is legally separate from the owner, who can sell stock in the company.
- A cooperative belongs to the people who use it. Everyone involved votes to make decisions and share profits.
While you can change business structures at any point, it is best to carefully consider your plans and needs before registering.
What factors to consider when choosing your business structure
Some factors to consider before choosing your business structure include:
- The paperwork required to register your company
- The tax benefits of each type of entity.
- The liability protection you need
- The hierarchy of your business structure
- How you intend to raise funds for your company
The purpose of developing a thorough business plan is to better understand your company. Choosing your type of business entity allows you to start the process of legalizing your company.