Are you a budding retail business entrepreneur struggling with picking a business entity?
Starting a business can be difficult, partly because you have to pick a structure.
But it doesn’t have to be.
If you know what you want with your business, then you’ll know which entity to choose for it.
You need to pick an entity that aligns with your business’s future goals. This post explains the three popular business entities there are.
1. Sole Proprietorship
This is very common with people looking to establish their retail businesses on a small scale.
One upside to starting a Sole Proprietorship is its ease of formation and the owner’s ability to have full control.
Additionally, the income of the Sole Proprietorship is also considered your personal income. Therefore, it’s taxed only once.
However, as an owner, you’ll be vulnerable to all the liabilities of your business. It’s also harder to get funding as a Sole Proprietor.
2. Limited Liability Companies (LLC)
In LLCs, the business is a separate legal entity. This means that as an owner, you will not be held liable for business losses and your personal assets will remain intact.
Unlike Corporations, your business income is passed on to you so you’re saved from double taxation.
The formation process, however, is harder than Sole Proprietorships but easier than Corporations.
The main downside here is the limited ability to upscale. As a result, it’s not the best business structure if you want to grow your retail business to the next level.
This is the most complex business structure there is. It’s also the most difficult and expensive to run.
However, if you’re looking to grow your retail business into something big in the future, this is your best option. With a retail business, you can go the franchise way or have numerous outlets, and having a Corporation can help you with both. That’s because it’s easy to raise funds.
You’re also allowed to go public and issue employee shares. A Corporation also provides the best liability protection. But you’ll be subjected to double taxation in Corporations.
Which Entity is Best for You?
When it comes to retail businesses, Corporations are the best if your goal is to scale up in the future. However, if you’re just starting out at a small scale, you could opt for a Sole Proprietorship or LLC.
To learn more about all three business structures, you can check out the infographic below.