Choosing the right corporate structure is the biggest consideration at the forefront of your business planning. Generally, a business entity can be structured as a Proprietorship, Partnership, a Limited Liability Company (LLC), or a Corporation. Various factors should be considered while selecting the corporate structure for your business-like Capital Investment, Licenses, Permits, Complexity, Taxes, Financial needs, Risk involved, and ability to grow.
Importance of Choosing Right Corporate Structure
With the multiple options available for business establishment, it is important to consider all the variables involved in business registration. First, decide on which factors are most significant for your business objectives.
You are required to pick the right structure at the very initial stage of Business Planning because your choice will affect the cost of the formation along with ongoing administration expenses and the following areas of your business as well:
- Tax Treatment
- Limited or Unlimited Liability
- Amalgamation/Dissolution process
- Flexibility regarding everyday operations
- Allocation of Profits and Losses
These all are important aspects that every business entity work upon differently. It is necessary to understand how these implications will affect your choice of business structure and support your business goals.
It is also important to select the right Corporate Structure because you will have to face difficulty in case you want to switch your corporate structure after registering it in a particular form. Thus, analyze carefully at the early stages of establishing your business because each form is well-suited for business objectives.
Types of Organizational Structure
- It is a good option for individuals who want to test their business idea before making investments in a formal business.
- Keep complete control of your business in your hand.
- If you proceed with sales of products without any registration process, your business is automatically considered as a sole proprietorship business.
- Raising funds for growth is difficult for this form of business.
- It is not a separate business entity and you cannot segregate business assets and debts from your assets and debts.
- Self-employment taxes will be levied on you.
- Two or more people can own a business together. They can register the business as:
- Limited Partnership (LP): It has one partner with unlimited liability who must pay self-employment taxes. All others will bear limited liability without any control over the company decisions.
- Limited Liability Partnership (LLP): Here every partner carries limited liability. LLP partners are safe from the debts of the partnership firm. No partner is accountable for other partners’ actions.
- Professional groups like attorneys or a group with a unique idea can opt for this option before getting registered for a more formal business entity. There is a need for documenting the partnership agreement.
- A corporation is a separate legal entity separate from its owners. It can be a C-Corporation or S-Corporation or B-Corporation or closed corporations, or nonprofit corporations. It entails its separate legal rights than its owners. It can sue or be sued. It is a full-fledged company.
- The cost of registration is much higher than in other structures.
- Owners are bound to update extensive record-keeping, operational processes, and reporting in the defined process by the government.
- A Corporation provides the strongest protection to its owners from personal liability.
4.Limited liability company (LLC)
- It provides the advantage of both the partnership and the corporation.
- It protects you from personal liability and owners can be safe from the taxes on their income.
- It has a limited life. After that, it can be re-formed.
- It is good for medium-higher-risk individuals.
Not each of these structures is right for every business. Take professional advice to get succeed in your business goals.
BFAG (Boston Financial Advisory Group) provides the best Compliance Services. We have a team of experienced professionals who can help you in maintaining your books of accounts. With BFAG taking charge of your FDI Compliance and Reporting, you can focus on deepening the partnership with foreign companies and expanding your business.
So, get in touch with us to avail of our services. Contact us in case of any assistance or queries.
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