Published on August 14th, 2018 | by Jose Vasquez0
Which Business Structure Is Best for a Startup Tech Company?
Choosing a business structure is one of the most important decisions an entrepreneur will make.
Before you get too far in the planning process for your business, you’ll need to decide on a business structure. The structure you choose will dictate your fate in many ways; not only will it determine what kinds of taxes you pay (and how you pay them), it could also determine your personal liability, and how much time you’ll have to invest in building and maintaining the business.
Ultimately, there are three main types of business structures you’ll have to choose from:
- Sole proprietorships/partnerships. These are the simplest type of business structure to start and manage on an ongoing basis, but they’ll leave you completely exposed in terms of liability. You’ll treat any income as personal income, so they’re usually better for small companies or part-time operations.
- Limited liability companies (LLCs). LLCs are treated as distinct legal entities, so they’ll protect you from most debts and liability. They’re relatively easy to form as well. All income, expenses, and debts are processed through this entity, and you’ll be taxed as an individual if and when you draw profits from it. One important thing to note here is that different states have vastly different rules for how to form and treat an LLC; some states impose extra taxes and fees, while others give LLC owners far more freedom. Do your research carefully here.
- Corporations (C-corporations and S-corporations). If you plan on expanding to the point of going public, corporations are easily your best choice. They’re more complicated, and require much more upfront work, but they give you the freedom to issue public shares whenever you’re ready. They’re also treated as separate legal entities, so you’ll be protected from most forms of liability. However, be aware that any corporate income you make may be subject to tax.
You’ll have lots of structuring options beyond these, such as whether your company is public or private, but these are your main options for consideration. Though most startup entrepreneurs gravitate toward LLCs and corporations, the choice is ultimately yours.
Contact me today if you’re interested in learning more about how to form a business from scratch!