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Avoid these mistakes when choosing a business structure

On Behalf of | Dec 1, 2021 | Business & Commercial Law, Business Formation

When you are just launching your new business, the choices you make at the start can have significant long-term implications for the success of your venture. Choosing the right business structure is among the most important decisions you face.

Unfortunately, many business owners make costly errors when deciding on the type of business entity for their enterprise. Avoid these common mistakes that could jeopardize the future of your company.

Forgoing a business plan

A business plan is an essential strategic tool that helps you organize and understand your short-term and long-term objectives and develop the tactics you will need to achieve those objectives. A business plan gives you a realistic view of your companies core competencies, as well as environmental factors that will affect your success. These are key considerations when choosing a business structure, as well, and your business plan will help you make the best decision.

Failing to consider taxes

The various legal entities have very different tax implications. With S Corps and LLCs, you report the business income on your tax return, a process known as pass-through taxation. C corps, on the other hand, are subject to corporate income tax.

Thinking short-term

You will need to think about your long-term objectives and financing plans when deciding on a legal structure for your company. Make sure to consider whether you will want to pursue investors or bring in new partners in the future.

Choosing the wrong type of business entity can limit your enterprise’s growth. Careful consideration during the start-up phase can help you avoid a costly restructuring.