Are you planning to start a retail business but aren’t sure which business entity to choose?
We’ve got your back.
One of the best decisions to make when starting a business is to choose the right business entity for it.
The business structure you choose will greatly impact your legal and financial decisions. Plus, the entity you choose will impact the way your business is run.
What does this mean?
Making the wrong choice when choosing your business entity can be a recipe for failure.
So how do you decide which business entity is right for your retail business?
In this article, we’re going to outline the four most common business structures for starting a retail business.
Let’s get started.
1. Sole Proprietorship
A Sole Proprietorship is the simplest business entity that’s owned and run by one person—only you. Starting a retail business under a Sole Proprietorship is simple, fast, and cheaper than any other entity.
Besides, this type of business entity doesn’t require a lot of paperwork, and you’re exempted from corporate tax payments.
The downside with this type of business is that you’re 100% liable for any debts and expenses.
Since it’s not compulsory to register a Sole Proprietorship with the state, building business credit becomes hard.
A Corporation is a separate business entity and is owned by shareholders. It’s the most formal business structure there is.
Corporations offer the best liability protection, meaning you’ll not be held liable for business debts. Similarly, raising funds is easier in Corporations, and they’re best suited for scaling businesses.
Unlike a Sole Proprietorship, forming a corporation can be complicated, though.
3. Limited Liability Company
An LLC is a separate entity just like a Corporation and combines the best of both Sole Proprietorships and Corporations.
It is one of the most flexible and simple business entities to form. For instance, when starting a real estate LLC in the United States, you can complete the paperwork in less than one hour.
Like Corporations, the owners are protected from responsibility for the company’s debts or liabilities. And like Sole Proprietorships, they don’t have to pay double taxes. That said, raising funds still remains a concern, so it’s best suited for medium-sized retail businesses.
The type of structure you choose will depend on your overall business goals. For instance, a Corporation is best for larger businesses, while Sole Proprietorships are great for small ones. To learn more about the differences between business entities, check out this infographic by GovDocFiling.