Major considerations when choosing your form of business

On Behalf of | Sep 17, 2019 | Uncategorized |

There are a number of ways in which a business can be organized under the laws of Arizona. For example, a sole proprietorship could work well for small businesses with one principal owner, while larger businesses likely will be formed as a corporation. In deciding which form of business is the best for a particular endeavor, there are three main factors to consider –funding, liability and income taxes.

When it comes to funding, the form of business may dictate when and how certain funds can be raised outside the course of business. For example, a corporation can issue stock – both preferred and common – as well as issue corporate securities. A partnership or limited liability partnership may seek additional partners who can provide more funding. Meanwhile, a sole proprietorship may have to rely on bank funding.

When it comes to liability, the corporate form is also important. In a partnership, the partners carry with them liability for all of the debts of the partnership. In contrasts, stockholders in a corporation are generally limited to the amount of money they pay to hold stock, which is, comparatively, very limited. Much like a partnership, a sole proprietor will be personally liable for the business.

Finally, income taxes are also an important consideration. Here, there may be an advantage to a sole proprietorship or partnership, as the tax “flows through” to the person and is only applied once. In a corporation, however, the company itself is taxed first, then any distribution made by the company through dividends is also taxed.

There are many considerations when forming a business, but these three factors – funding, liability and income taxes – should be given a large share of attention during the decision process. Working with seasoned professionals who understand the pros and cons of each business form available here in Arizona can help those looking to start or further grow a business.