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Select the Right Business Structure for Your Startup with These Tips

When starting a business, one of the first decisions you'll have to make is what legal structure to choose for your company. This can be an intimidating task, as there are several different types of business structures to choose from, each with its own set of pros and cons. The good news is that there's no need to agonize over this decision. By taking into consideration a few key factors, you can select the business structure that's best for your startup. Take note of this great advice from the Lafayette Chamber of Commerce.

Different Business Structures

There are four main types of business structures: sole proprietorships, partnerships, limited liability companies (LLCs), and corporations. Let's take a look at each one:

  • Sole Proprietorship: A sole proprietorship is the simplest type of business structure. It's owned and operated by one person, and there's no legal distinction between the owner and the business itself. The main advantage of a sole proprietorship is that it's relatively easy and inexpensive to set up. However, the biggest downside is that the owner is personally liable for all debts and obligations incurred by the business.

  • Partnership: A partnership is similar to a sole proprietorship in that it's owned and operated by two or more people. However, unlike a sole proprietorship, there is a legal distinction between the partners and the business itself. Partnerships can be either general partnerships or limited partnerships. In a general partnership, all partners are equally liable for the debts and obligations of the business; in a limited partnership, only some partners are liable (usually just the general partners). Limited partnerships are more complex than general partnerships and usually require the assistance of an attorney to set up.

  • Limited Liability Company (LLC): An LLC is a hybrid between a corporation and a partnership. Like a corporation, an LLC offers its owners limited liability protection. However, like a partnership, an LLC formed in Colorado is not taxed as a separate entity. LLCs can be either single-member or multi-member.

  • Corporation: A corporation is a separate legal entity from its owners (known as shareholders). This means that shareholders are not personally liable for debts and obligations incurred by the corporation. Corporations can be either C corporations or S corporations. C corporations are taxed as separate entities; S corporations are not.


Depending on which structure you choose, you will need to create quarterly or annual reports for your key stakeholders. They will want to know about your current financials, how previous campaigns worked out, and what you have planned for the upcoming year. Instead of creating these reports from scratch each time, find a free online PDF extraction tool to pull out old pages and insert ones with updated information. This tool will save you plenty of time that you can then use on other business practices.

Factors to Consider When Choosing Your Business Structure

Now that you're familiar with the different types of business structures available, let's take a look at some factors you should consider when making your decision:

  • Liability Protection: How much personal liability protection do you need? If you're concerned about being held personally responsible for debts incurred by your business, then you'll want to choose a structure that offers some form of liability protection (i.e., anything other than a sole proprietorship).

  • Taxes: How will your business be taxed? If you want your business to be taxed as a separate entity from yourself (i.e., as either an S corporation or C corporation), then you'll need to choose one of those structures.

  • Cost and Complexity: How much time and money are you willing to spend on setting up your business? If you want something that's quick and easy to set up (and doesn't require the assistance of an attorney), then go with a sole proprietorship or partnership. If you're willing to spend more time and money on setting up your business in exchange for greater personal liability protection, then choose an LLC or corporation.

How to Register Your Business

Once you've chosen your business structure, it's time to register your company with the state in which you'll be doing business. The process for registering your company will vary depending on which state you're in. However, most states have an online registration system that makes it relatively simple to complete the process yourself without having to hire an attorney. Once you've registered your company, make sure to obtain any licenses or permits required by your state or local government so that you can legally operate your business.

Staying Organized

As your startup grows, it will become increasingly important to keep track of various aspects of your business such as expenses, inventory levels, and customer information. There are many software programs available (both free and paid) that can help you stay organized. Find one that fits your needs and make sure to use it on a regular basis so that important information doesn't slip through the cracks!

Weigh Your Choices and Decide

Choosing the right business structure for your startup may seem like a tall order — but it doesn't have to be! By taking into consideration factors such as liability protection and taxes, you can narrow down your options and select the best possible structure for your new company. Once you've chosen your structure, registering your business with the state is usually fairly simple, but don’t forget to also submit your taxes and annual report each year. Fortunately, there are many software programs available to help small businesses stay organized and stay on track of their daily processes.

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