Choosing the Right Business Structure involves a comparison framework for deciding between proprietorship, partnership, LLP, and company structures when starting a business. While the process itself is usually straightforward, businesses commonly run into avoidable issues along the way. Here are the mistakes we see most often, and how to steer clear of them.
Mistake 1
Choosing a proprietorship for a high-risk business needing liability protection.
Mistake 2
Picking a private limited company without being ready for its compliance burden.
Mistake 3
Not considering how the structure will affect future fundraising ability.
Mistake 4
Ignoring tax implications specific to each structure.
How to Avoid These Issues
Most of these mistakes come down to preparation. Having the right documents ready — Number of founders/owners involved, Liability protection needs based on business risk, Plans to raise external funding, among others — and understanding the process before you start goes a long way toward a smooth outcome with general principles based on liability, compliance, and fundraising needs.
Quick Reference: What You'll Need
- Number of founders/owners involved
- Liability protection needs based on business risk
- Plans to raise external funding
- Compliance capacity and willingness to handle ongoing filings
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