This is one of the first questions any business owner is asking themselves. I am referring to what type of entity the business owner wants to be – or if you are already in business, what type am I? Your options are Sole Proprietor, Limited Liability Company, S Corporation, or C Corporation. Which option you choose depends on your individual situation. Just because your neighbor, friend, or fellow business owner is an S Corporation doesn’t necessarily mean that is the right choice for you. Each option has its strengths and weaknesses. Research the different choices. Ask your accountant, your lawyer,and even your friends who own a business why they would choose one over the other.
The most important part is to make an informed decision. Know why you are choosing your particular entity. Know what the tax ramifications are, the reporting requirements, the bookkeeping requirements, etc. Also, revisit this decision as your business changes and grows. If you start out as a Sole Proprietor, there may be a point when it would be good to switch to an LLC. If you are an LLC, there may be a point at which you have grown large enough to make it advantageous to become an S Corporation.
Deciding what type of entity your business will be is a basic foundation block of your business. Building your own business is an exciting journey – make sure your foundation blocks are solid!
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