Is it Time to Convert Your Sole Proprietorship to a Corporation or LLC?
Are you finding it difficult to decide between forming a sole proprietorship, corporation or LLC? Keep in mind that your initial choice of your business’s legal form doesn’t have to be permanent. You can start out as sole proprietorship or partnership and later, if your business grows or the risks of personal liability increase, you can convert your business to an LLC or a corporation.
In general, there are 3 critical areas for consideration when selecting the right legal structure for your business.
These include:
Risk – All businesses carry some degree of risk, and savvy business owners will want to choose a structure that protects their personal assets from business liabilities.
Taxation – Business structure affects many aspects of your company, including your tax obligations. Choosing the right structure for your business could mean the difference between expensive, time-consuming taxes or affordable, simplified tax liabilities.
Complexity – There is complexity and expenses for organizing your business. You will encounter certain organizational costs. These costs can include developing a business plan, obtaining necessary licenses and permits, obtaining the advice of counsel, and other costs.
Sole Proprietorship is the most Popular Business Structure but is it Right for You?
Here are some resources from the U.S. Small Business Administration where you can read about the different business structures:
S Corporation: https://www.sba.gov/starting-business/choose-your-business-structure/s-corporation
LLC: https://www.sba.gov/starting-business/choose-your-business-structure/limited-liability-company
Sole Proprietor: https://www.sba.gov/starting-business/choose-your-business-structure/sole-proprietorship
Corporation: https://www.sba.gov/starting-business/choose-your-business-structure/corporation