Challenges and opportunities are two faces of the same coin when establishing a business, which is as true for retail business as it is for any other kind. As a new business owner choosing the right legal entity for yourself, you’ll need to comprehensively address a few of the major challenges.
At the heart of every successful business is thorough preparation. While the logo and business name are what’s usually highlighted, we can’t ignore the structure you want to adopt while forming your retail business. To make that choice, you need a good understanding of the different types of business structures, and the pros and cons of each.
To get you started on the right note, here’s a quick overview of the types of business structures in the US. Let’s get right to it.
1. Sole Proprietorship
A sole proprietorship or sole props, for short, is the easiest and the simplest business structure in the US. This unincorporated business entity has one owner who is completely in control of the day-to-day operations.
Sole props are extremely popular with niche artisans, self-contributors, and consultants. The obvious reason is the ease of formation, minimal registration fees, and ease of maintenance. If you are new to the industry and want to try out your business idea on a small scale, you should consider starting your retail business as a sole proprietorship.
You may be surprised to know that you don’t need to register sole props with your state. And that’s the reason your retail business does not pay taxes. As you are the sole owner of the business, you can keep all the profits you make and reflect that amount as your personal income.
In a sole proprietorship, the business is not independent of its owner; they are the same entity. As a result, your personal assets may be consumed to pay off business debts and losses. Unlimited liabilities is the biggest drawback of a sole proprietorship.
2. Limited Liability Company (LLC)
An LLC is the favorite choice for startups and small business owners. You may consider it as well when starting your retail business as it is easy to form and manage. What makes LLC the top choice?
As a business structure, it combines the flexibility and simplicity of a sole proprietorship with the protection of a corporation. The business exists as an independent entity and the personal assets of the owner are completely protected.
Although there is less paperwork, LLC is a notch higher in structure to sole props. The business will pay tax for the profits it makes, but not as high as corporate taxes. You do, however, have to pay social security and medical care taxes.
Corporations are the most structured and complex legal business entities. When a business is established as a corporation, it exists independently of its owners. The owners are the shareholders who invest money in a corporation.
However, the owners are not responsible for running the business or making any decisions. These operations are taken care of by the board of directors and the officers in the company.
A corporation as a business structure is not suitable for startups or small businesses. Once your retail business is well established and you wish to expand it, you may consider upgrading it to a corporation.
So there you go! The major characteristics of the 3 major business entities in the US. To get a detailed overview of all the business structures that we’ve discussed above, you can check out this infographic by GovDocFiling.
With this clear understanding, you can confidently choose the right legal entity and embark on establishing your retail business.