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What should business formation decisions be based on?

Knowing the right considerations to base a business formation decision on is important. There are several factors that should be taken into account to decide which business structure is most ideal for your business. There are several important considerations that should guide the selection of a business form including:

Business taxes

Business owners must meet tax obligations and the type of business structure the entrepreneur selects will determine the tax obligations their business must pay. Sole proprietors are personally liable for all liabilities of the business, while with limited liability companies (LLCs) personal and business liabilities are kept separate which is also true of corporations. The type of corporation also determines the way the business is taxed.

Personal liability

The level of personal liability of the members or owners of the business depends on the type of business form. Personal liability rules are complex but important to understand. As an example, corporations provide complete personal liability protection. Personal liability considerations must be taken into account when selecting the best business form.

Type of industry

The type of industry the business owner is engaged in, and the level of risk it presents, can also influence a business structure decision. The type of industry may also have an impact on state regulations and requirements the business must meet. Ease of operating the particular business form should also be taken into account.

Overall, the type of business form selected has important legal, financial and operational impacts on the business when it starts up and as it grows. Business owners should make an informed business formation decision based on business law and careful consideration of these and other factors.

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