Choosing the Right Business Structure for Your Small Business
April 13, 2022

Whether you’re just starting out or growing an existing business, the structure you choose for your business is more than just a piece of paper. It can affect everything from daily operating decisions to your tax status, and ultimately your ability to attract investors and meet long-term goals.


Thinking about company culture and what you hope to achieve can be a good starting point for identifying the structure that best meets the needs of your business. You’ll also want to consider such factors such as:


  • Number of owners
  • Type of business and level of risk in the industry
  • How owners will share decision-making powers
  • Profit sharing
  • Available tax advantages and avoiding double taxation
  • Risk to your personal assets for the debts and liabilities of the business
  • Ability to raise capital and/or attract investors
  • Ownership transferal
  • Ease and expense of formation


Types of Business Structures


The choice of business structure often comes down to weighing the amount of control you want to maintain against the level of protection from liability you need. The most common types of business structures are sole proprietorships, partnerships, limited liability companies, corporations, and co-operatives.


1. Sole Proprietorship


This is often the simplest type of business structure, in which one person maintains sole ownership and complete control of the business. The owner and business are considered a single legal entity for purposes of taxes – and the owner is personally liable for business debts. Sole proprietorships are typically easy and relatively inexpensive to set up, but do not offer the separation of personal from business assets. As your business grows, you may seek more protection of your personal assets from business liabilities.


2. Partnership


A partnership is owned by two or more individuals. In a general partnership, control and assets are owned equally. A limited partnership allows you to create different levels of control and profit-sharing among partners. Typically, an attorney will draft and/or review a partnership agreement, which may add some time and expense over a sole proprietorship structure.


3. Limited Liability Company


A limited liability company (LLC) allows business owners to take advantage of the tax benefits and flexibility of a partnership, while protecting themselves from personal liability. An LLC can be more expensive and time-consuming to set up than a partnership or sole proprietorship and may involve federal or state reporting requirements.


4. Corporation


A corporation is its own entity, with its own legal rights apart from the owners. This structure is generally more appropriate for larger, more established businesses. It maximizes personal protection from liability but comes with more costs and reporting requirements and less decision-making flexibility.


5. Co-operative


A co-op is owned by “user-owners” who use the services of the business. Forming a co-op can be complicated but may allow for federal start-up grants, and discounts and benefits for its members.


Contact Deppman Law PLC Today


The optimal structure for your small business may not fall neatly into one of these categories. The contracts and agreements that form businesses can be uniquely tailored to your needs – and you can restructure as you grow your business. An experienced VT small business attorney can ensure that all tax and legal implications are addressed and help choose the structure that best meets the individual needs and goals of your business. Contact Deppman Law PLC today at 802-388-6337 for a confidential consultation about your case.

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