Question

What are the five main factors a business owner should consider when selecting a business entity?

Answer 1

The important factors that a business owner should consider while selecting a business entity are:-

• Taxation: It is important to choose an entity which avoids double taxation. A C corporation is itself subject to taxation and then the income derived from the same is also subject to personal taxes. An LLC or a S Corporation structure will solve the issue of double taxation.
• Limited Liability: The business owner will not like to assume the liability of the business so that his personal assets are put under charge for fulfilling the business liabilities. A Corporation provides this feature while sole proprietorship exposes the owner.
• Ability to raise capital: An incorporated business has a better chances of raising capital rather than simply a proprietorship.
• Control: Sole proprietorship provides greatest control. A partnership is an intermediate arrangement while in an incorporated entity, the owner has to take the vote of other investors.
• Ease of formation: The partnership or Sole proprietorship can be easily formed. While incorporating a company needs many formal processes and steps.