As an entrepreneur, starting a retail business can be both exciting and stressful for you.
On one hand, it is a chance for you to realize your dreams and be your own boss, but at the same time, it requires endless preparation, hard work, and resources.
Choosing the right entity is one of the fundamental decisions you would need to make before starting a retail business.
To decide which business structure is the best for your business, you should gain a good understanding of each. Here is our brief guide on the best business structures for starting a retail business along with their advantages and drawbacks.
Let’s take a look.
1. Sole Proprietorship
It is simple, quick, and straightforward to form a sole proprietorship in the US. that’s why many first-time entrepreneurs prefer this business structure when starting out small.
It has a single owner who takes care of all the operations and responsibilities of the business. Moreover, the profit that the business makes is considered as the personal income of the owner.
Some of the advantages of a Sole Proprietorship are:
- Quick to start
- Minimum paperwork
- Complete operational flexibility
- No corporate taxes
The disadvantage, however, is that there is no protection for the owner’s personal assets in case of loss or bankruptcy.
2. Limited Liability Company (LLC)
LLC is the most preferred business entity for most small business owners in the US.
The obvious reason is that starting an LLC is fairly easy. As a business structure, it combines the best features of a sole proprietorship and a corporation.
As the name suggests, an LLC owner has limited liabilities and their assets are protected against financial risks. Some benefits of this legal entity that stand out are:
- Less paperwork
- Limited liability and asset protection
- Not subjected to double taxation
3. Corporation
When a business is formed as a corporation, it becomes a separate legal entity, independent of its owners.
In this case, the shareholders are the owners but they may not play a role in managing the day-to-day operations. Instead, a board of directors is appointed as the decision-making body.
Compared to Sole Proprietorships and LLCs, a corporation has a complex structure and involves extensive paperwork. Corporate businesses pay double tax and are subject to heavy regulation.
It is, however, the best option if you want to start a big retail business that can scale easily. As for small businesses, the previous two options are better.
There you have it, the three business structures you can consider while starting your retail business.
Would you like to gain a deeper understanding of these? Then check out this infographic by GovDocFiling giving a clear overview of the pros and cons of each entity.
Author Bio:
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.
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