Opening a business is an exciting adventure! But let’s be honest, it’s also risky, daunting and full of hard decisions. One of which is trying to anticipate what legal structure will be best for you and your future business.
Unfortunately, it’s not a one-size-fits-all deal. There are a lot of options to choose from and each has unique benefits and serious drawbacks. Not only will this decision affect your day-to-day, but will also have an impact on how much you pay in taxes, the amount of paperwork your business is required to complete and how much of your personal assets are on the line.
We think the best advice is to evaluate all your options and choose a business structure that gives you the right balance of benefits and legal protections. But don’t thank us for that tip– we talked to an experienced small business lawyer to learn more about what they offer and how they can support any small business in the state.
Here are more helpful tips courtesy of your local Phoenix small business attorney.
The 5 Main Types of Business Entities
For most business owners, there are five basic business entities to choose from.
- Sole proprietorship
- Limited liability company
Each has its own pros and cons and as you’ll soon find out, making an uninformed choice could cost you everything.
How to Choose The Right Business Entity Type
Of all the decisions you’ll face when starting a small business, one of the most important is the type of legal structure you select for your company. However, not all entity types are created equally. Understanding the fundamental differences between each and choosing the right one for your company will significantly help to prevent future complications. Your decision will mostly depend on three primary factors: liability, taxation and administration costs.
- Legal liability: before you start a business, you’ll need to consider whether your business yields itself to potential liability. If so, you can be held personally responsible depending on the entity you go with.
- For example: as a sole proprietor, if your business gets sued and is unable to cover the debts, your personal assets are then at risk. Making an uninformed choice here could literally cost you everything!
- Tax implications: as a business owner you want to reduce tax liability as much as possible. Based on the structure you choose, you could either have multiple exemptions available, or be forced to pay double taxation. The wrong choice here could cost you thousands. A small business lawyer can walk you through all the complicated and confusing tax laws to make sure you’re in the right fit.
- Administration costs: it goes without saying, businesses are expensive to run especially when it comes to administrative and bookkeeping costs. Unfortunately, tax advantages may not be enough to offset these kinds of costs and although certain entities offer bigger tax exemptions, they are typically more expensive to maintain than others. An experienced lawyer can help you find the right balance to keep your costs down, and your exemptions high.
A Local Small Business Lawyer Can Help
If you’re planning on starting a business, a small business lawyer in Phoenix should be the first person you talk to if you are setting up shop in Arizona. They have something to offer for every step of the way, not just when you need legal representation. There really is no better resource for all the legal ins and outs of business formation, and no one else you should trust to protect your assets.