When it comes to forming a business, it all comes down to structure. Taking care of proper business structure early on will set things up to grow smoothly and not worry about any major issues with taxes or liability down the road.
First-time business owners might not know much about structure, but there are only a few different types of options out there. Dorado Management Services knows that, and they want to guide people in the right direction at all times.
What is a Business Structure?
The simplest way to describe business structure is that it’s a legal representation of how a company is organized. Not only does it indicate who owns the company, but it also covers how to distribute profits.
A business structure must be in place when registering with the government. While structure can be changed later on, it’s always best to start with the correct setup early. Dorado Management Services can help business owners fill out and organize the proper paperwork for business owners as they decide on a good structure for their business.
The Five Most Common Types of Business Structure Options
The good news is that there are only five types of business structure that just about every company will utilize. There are a lot of other specifics that go into running a business, but picking the right starting point makes a difference.
This is the simplest business structure and works great for those not necessarily looking to have a big company in the short or long term. One person owns the business in the setup, and they run the entire operation.
Anyone looking to work alone will love the benefits of a sole proprietorship. They have complete control, it’s simple to start, and tax reporting is pretty easy. Another advantage is that there are no required annual reports for the state or federal government. Anyone valuing privacy will love a sole proprietorship.
Whether a business opts for a general or limited partnership, this is a solid choice for anyone finding it tough to find everything on their own. Bringing in a partner can open up funding and loan opportunities that might not be available with a sole proprietorship. However, it does complicate both the profit and liability since it needs to be split up.
Partnerships are still easy to set up, and the tax forms are pretty straightforward. Dorado Management Services can help with any of the paperwork that becomes a little too complicated. Some business owners have a big fear when running a business on their own, so a partnership could be the best way to avoid any complications.
A C Corporation company is entirely independent of its owners. While this can help with liability protection, it does make for a more complex structure than the two already mentioned. That’s why Dorado Management Services offers a lot of assistance for this type of structure compared to the others.
From the very beginning, keeping proper records will help out tremendously. If the goal is to get the business to a size that’s fairly big, going with a C Corporation is much easier to grow into.
With a C Corporation, raising funds by selling company stock is much easier, and offering shares is much easier.
Getting deeper into C Corporation options, there are also Benefit corporations, Closed Corporations, Open Corporations, and Nonprofit Corporations.
An S Corporation operates similarly to a C Corporation, as owners will still have liability protection and more tax benefits. The difference is that the IRS puts together specific criteria for businesses to use this type of structure. Shareholders must be United States citizens and can’t have more than 100 shareholders at a time.
Another limitation of S Corporations is that they can only sell common stock. This allows shareholders to create a Board of Directors and vote on policies when necessary.
Going in the S Corporation route means that no double taxation exists, there’s plenty of liability protection, and a cash method of accounting works. A lot of business owners who like the idea of growing to a certain level will try to offer an S Corporation early on.
Limited Liability Company
A Limited Liability Company is the final type of business structure that’s pretty common in the business world. Known as an LLC, this business structure tries to take advantage of as many different other structures as possible.
Think of an LLC as a combination of a partnership and a corporation. It takes time to fill out paperwork to set the business up, but the structure takes care of itself.
As the name implies, one of the biggest advantages of an LLC is limited liability. It is an independent entity, so people aren’t responsible for any debts or lawsuits against the company. This means that if the business does go bankrupt, protection exists for personal assets.
If the company grows more and more, an LLC has no limit on the number of shareholders. Shareholders also can participate in the company’s operations. There’s a lot of flexibility with an LLC, as profit distribution is pretty straightforward.
How Dorado Management Services Helps With The Right Business Structure
Even after doing some research online, entrepreneurs might not know what to do with a business and its structure. Dorado Management Services can offer specific advice, but people should consider a few different factors before picking.
Control and flexibility matter a lot for any business owner. No one knows just how much success a business will have, especially early on. There needs to be a look at things from a current perspective as well as a year or two down the line.
Investment opportunities also make a big difference in funding an idea. A corporation can source funding, while a proprietorship uses its owner’s credit. It can be very challenging and complex if a business owner does not have the money necessary to grow at the rate they like.
Finally, it’s always worth considering liability and taxes. These are two things that people don’t want to have to deal with too much later on. Knowing the type of liability a person is taking on with a business helps out a lot. If taxes are overwhelming, a simple setup might be the best way to go.
Overall, Dorado Management Services is there to help any business owner needing to figure things out. It might seem tedious, but talking to professionals first can save a ton of time later on.