Starting a retail business requires a lot of work. You need to pick the right store location and identify your target market. It is also important to consider your legal and regulatory environment to ensure that you meet all the compliance requirements.
One important consideration when starting a retail business is picking the right business entity. The business entity you choose determines how your company will be structured. It also determines the amount of paperwork required and how much you pay in taxes.
Most importantly, your business entity determines the level of your personal liability if your business ever gets sued.
Here we have listed three of the most popular structures and mentioned their key characteristics. Compare the three to make the right decision for your business.
Sole Proprietorship
A Sole Proprietorship is an unincorporated business with just one owner. It is one of the easiest business entities to set up and requires the least amount of paperwork. There is no need to file state or federal forms and is the perfect way for self-employed people to start out.
A Sole Proprietorship is not, however, a separate legal entity, so you are not exempt from the liabilities incurred by your business. For instance, if your business defaults on a loan, your creditors can go after your personal assets to satisfy the debts.
Therefore, a Sole Proprietorship may not be the best business entity if you want to protect your personal assets.
Limited Liability Company (LLC)
If you want to protect your personal assets, an LLC is one of the best business entities for your retail business. An LLC makes your business a separate legal entity. So, if your business gets sued, your personal assets are never at risk.
Owning an LLC also does not require you to pay federal taxes. However, the owners of the LLC need to report the profits and losses of the business on their own personal tax returns.
LLC regulations and LLC fees vary from state to state. If you want to identify the best states to form an LLC, we suggest you go through the requirements of various states to figure that out.
Corporations
A Corporation is also a legal entity separate from its owners. Like an LLC, it also offers limited liability, which means that the owners are personally liable for the business’s debts.
If you want to scale your business or go public, this is one of the best business entities to choose.
Want to learn the advantages and disadvantages of these business entities? Check out the infographic below.
