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3 factors that influence the best choice for a business structure

On Behalf of | Aug 11, 2023 | Business Formation

There are many challenges that arise when starting a business. Aspiring entrepreneurs need to make some very important decisions early in the process to protect themselves and maximize their chances of forming a successful venture.

One of the most important choices that is made when someone starts a new company is the business type or form someone selects. There are many different types of businesses that people choose to start and operate in Texas, ranging from limited liability companies (LLCs) and corporations to sole proprietorships and partnerships. Those trying to start a company need to choose carefully when deciding what type of company to start, and carefully considering the three factors below is often part of that process.

The level of risk

Someone who wants to start an online shop selling bespoke clothing would have very minimal risk initially because they won’t have a physical location and may not intend to hire any employees. Their products are unlikely to cause injury to anyone. Other business models may require physical facilities and dangerous equipment that could lead to people getting hurt. They may produce products or provide services that come with some degree of risk for customers and clients. The likelihood of injury or financial claims against the company in the future can have a major influence on the right type of business to start.

The one, five and 10-year plans for the business

It is usually advisable for those considering an entrepreneurial endeavor to learn about the market and plan the company’s development and growth. The faster the company will expand and the bigger the final goal for the organization, the more important it may be to put together a complex, formal business structure. Those anticipating major growth, hoping to become a publicly traded organization or aspiring to operate a national level will often require more complicated business structures than those intending to keep things small and operate locally.

The amount of support someone requires

Running a hot dog cart at a local beach or tourist attraction may only require one worker and minimal administrative support. More complex business models may require outside investment and numerous types of professional help, ranging from accounting services and investors to on-site medical professionals. The more support someone needs either from outside entities or employees and investors, the greater the likelihood that they will need to choose a more complex structure.

Those who take the time to think about their current needs and future plans for their new business will have an easier time choosing the right form for the company they want to create. Taking thoughtful steps to protect oneself early in an entrepreneurial endeavor can be as important as having the courage to move forward with a new business idea in the first place.

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