If you’re thinking of starting a retail business, you are about to enter an evergreen marketplace. No matter the niche you have chosen for your retail business, you can be certain of one thing, there are a lot of decisions to make.
One of the foremost decisions is regarding the business structure that can serve your business the best.
If you are in a fog regarding this decision, we’ve got you covered. Here’s a quick overview of the 3 major types of business entities with their pros and cons.
So let’s get right to it.
1. Sole Proprietorship
In simple terms, a Sole Proprietorship is owned by a single owner and there is no legal distinction between the entity and the owner.
It’s the simplest business structure to start and operate and is the preferred option for starting a retail business with limited risks.
As the sole proprietor of your business, you have complete control over its operations and you take home all the profit without paying any corporate tax.
The downside of Sole Proprietorship is that you’ve got unlimited risk and your personal assets are also on the line.
2. Limited Liability Company (LLC)
LLC is a business structure that brings you the protection of a Corporation and the simplicity and flexibility of a Sole Proprietorship. That’s why it’s one of the most preferred business entities for startups and SMBs in the US.
One of the biggest plus points of this legal entity is that the owner’s personal assets can be protected from loss or debt incurred by the business.
Additionally, unlike Sole Proprietorships, there can be one or more owners in an LLC who may share responsibilities of operating the business.
However, you have to pay self-employment tax and state fees as the owner of an LLC.
3. Corporation
Forming a Corporation would be the right decision if your retail business will be spread across many cities.
A Corporation operates in the most organized manner with a board of directors and employees. You can attract investors and grow your business exponentially.
But a Corporation is subject to double taxation and heavy regulation. It may not suit you if you are starting a retail business on a small scale.
By now, you might have gauged the value of understanding each entity type before choosing one for your retail business.
To get a clearer picture, you can check this infographic by GovDocFiling and make a calculated choice. This decision could make or break your retail business in the long run.
Brett Shapiro is a co-owner of GovDocFiling. He had an entrepreneurial spirit since he was young. He started GovDocFiling, a simple resource center that takes care of the mundane, yet critical, formation documentation for any new business entity.
