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Choosing the Right Business Structure

Before you decide, consider your options and take a closer look at the pros and cons of each.
August 11, 2003
URL: http://www.entrepreneur.com/article/63932

Q: After 23 years as a professional working for others, I have decided to start my own business from home. Should I be a sole proprietor or incorporate as an LLC?

A: Generally speaking, the purpose of setting up any kind of corporation is to shield yourself from liability and protect your assets from creditors. If you're planning to give your clients advice, publish articles written by others, manufacture products or engage in any other kind of business that might get you entangled in a lawsuit, you should definitely consider incorporating your business. Other advantages to incorporation include the ability to raise capital by selling stock, the ability to transfer ownership to heirs or investors quickly and easily, and greater flexibility in setting up retirement funds and qualified retirement plans, like a 401(k).

The downside is that you'll need to lay out money to set up your corporation, keep careful records of shareholders' meetings and file a separate tax return. You will also be taxed twice on your company's profits unless you elect to become an S corporation or set up your corporation as an LLC.

Remember: You can always start your business as a sole proprietorship, then incorporate your business later as your company's needs change. Here is a brief overview of the differences between the various types of corporations:

For an excellent overview of the pros and cons of the various types of corporate structures, you can check out the Business Filings Web site.

Depending on which attorney you choose, you can spend anywhere from a few hundred to a few thousand dollars in legal fees to set up your corporation. While I strongly recommend consulting an attorney before setting up your corporation, many entrepreneurs prefer to save money by doing it themselves. Sites like Business Filings and MyCorporation.com let you create your own corporation by filling out an online form. The cost to use these services is $99 to $310, plus the applicable state filing fees.

Rosalind Resnick is the founder and CEO of Axxess Business Centers Inc., a storefront consulting firm for start-ups and small businesses. She is a former business and computer journalist who built her Internet marketing company, NetCreations Inc., from a two-person homebased start-up to a public company that generated $58 million in annual sales.


The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.