Do you want to start a retail business and are not sure which entity to choose?
Starting a retail business is challenging for most new entrepreneurs. You have to get everything done right, from getting the products to running the day-to-day operations.
The most important thing is to find the best business entity to fit your needs.
Legal business entities can affect how your business is run, managed, and scaled.
Which business entity is best for starting a retail business?
ll business entities come with their own pros and cons, and it is vital to choose the right one for your business.
We have put together this guide to assist you in making the right choice for your business.
1. Sole Proprietorship
If you are looking to start a business on a small scale, a sole proprietorship is the best way to go. The main reason for this is that it requires less paperwork.
Sole Proprietorships are easy to form, and the day-to-day operations are managed solely by the sole proprietor.
You do not need to pay corporate taxes for them. Best of all, all the income goes through your personal income, and you are saved from double taxation.
This business entity has some cons too. One of the major cons is that you will carry all the business liabilities, and your personal assets are not protected from liabilities either.
If you want to open many business outlets, this might not be the best entity for you. It may be hard to expand with a Sole Proprietorship as you cannot get partners. It’s also difficult to secure external funding for a Sole Proprietorship.
2. Limited Liability Company (LLC)
A Limited Liability Company gives you the best of all business entities. In an LLC, your personal assets are protected from business liability.
You can have any partners in an LLC, enabling you to expand your business.
As if that is not enough, your income passes through your personal account, saving you from double taxation as well.
Still, creating an LLC is a bit more complicated than establishing a Sole Proprietorship.
Even though you will be exempted from paying corporate taxes, you will have to pay self-employment taxes.
Corporations like LLCs are separate legal entities. However, they are a lot more complex and flexible.
The main advantage of Corporations is that they have the greatest liability protection of all business entities.
Moreover, it is easy to grow your business by going public or bringing in new investors. This makes it the easiest legal entity to expand your retail business.
On the other hand, Corporations’ reporting requirements and guidelines are stringent, making it a challenge to run them.
They also require a lot of paperwork and are more expensive to form.
Lastly, you are subjected to double taxation when starting a retail business as a corporation.
There is a lot to consider when picking the right business entity to start your retail business. See the GovDocFiling infographic below to get detailed information on the subject.
Brett Shapiro is a co-owner of GovDocFiling. He had an entrepreneurial spirit since he was young. He started GovDocFiling, a simple resource center that takes care of the mundane, yet critical, formation documentation for any new business entity.