Sole proprietorships are best suited for very new businesses because they are easy to form. However, it is highly recommended that you convert your sole proprietorship into an entity that provides limited liability protection once it begins to grow.
By moving to an entity like an LLC, you’ll get the same tax benefits you had with your sole proprietorship, but you won’t be subject to unlimited personal liability. Although this is more expensive than remaining as a sole proprietorship, most business owners find this beneficial.
You’ll want a partnership for the same reasons you want a sole proprietorship: ease and convenience. The only difference is that you want to start a business with someone else, not just on your own. However, this should be a temporary structure because once your business expands, you will need to protect yourself by forming an entity with liability protection.
An LLC is the most versatile form of business. If you want to be the sole owner of your company, create a single-member LLC instead of a sole proprietorship. You will gain the same tax benefits and independence, but your personal assets will be safe from debtors. If you want to start a business with some friends, create a multi-member LLC instead of a partnership for the same reasons. Many states recognize different forms of LLCs that may be a good fit for your business needs.
You should choose a company if you are looking for rapid growth because it excels at raising capital by attracting investors. Keep in mind that a corporation is usually subject to corporate tax unlike other types of entities. However, you can overcome this problem if you want to create a foundation with a charitable purpose. Nonprofit corporations are tax-exempt, easier to set up and will be recognized nationally – making them the preferred legal structure for a non-profit organization.
Remember that choosing the right entity type for your company depends on all the circumstances surrounding it. You can use one of the best LLC formation services for a fraction of the cost of hiring an attorney if you want personal, professional assistance in choosing the best way to organize your business.