Factors to Consider Before Choosing a Form of Ownership

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Factors to Consider Before Choosing a Form of Ownership

By | April 2013
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It is important to make decision which form of ownership to be used for your new business. There are a few factors to consider before choosing a form of ownership. First of all, tax considerations. Each entity type has its own tax requirements and benefits. Most business owners want to have as small as tax hit as possible. Business owners should consider tax laws, because some businesses are taxed heavily than others. Tax rates for each form of ownership constantly change due to amendments to the tax code. These fluctuations affect the amount of tax a company pays to the government. Owners of unincorporated businesses such as sole proprietorships or partnerships pay income taxes on all net profits of the business, while corporations usually have more tax options.

Secondly, the start-up and future capital requirements should be consider also. Forms of ownership differ in their ability to raise start-up capital. Depending on how much capital an entrepreneur needs and where she plans to get it, some forms are better than others. Also, as a business grows, its capital requirements increase, and some forms of ownership make it easier to attract financing from outsiders.

Other than that, cost of formation also consider to choose the type of ownership. Some forms of ownership are much more costly and involved to create than others. Entrepreneurs must weigh carefully the benefits and the costs of the particular form they choose, bearing in mind the financial implications of each.

With the liability issue, most owners incorporate their businesses to guard their individual assets. In that way they can protect from liability when the company files bankrupt. No one can take away their personal property. However, investors choose to incorporate their businesses depending on the potential and risk involved in the venture. Certain form of ownership offer business owners greater protection from personal liability for the financial problems. LLC, a limited liability...