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What type of business should you form?

You've got a great idea for a business and you've done your homework with things such as cost and market research. You're ready to launch, but you aren't sure what type of business structure is right for you. The first thing to understand is that there isn't one right answer for everything, and there's not an exact formula for determining which business structure you should choose. There are, however, some common considerations that can help you make a decision.

Before you make a decision, it's a good idea to talk to a business law professional so you fully understand your options. A lot of people think they should incorporate or form an LLC because they've heard that it will save them money on taxes. While these types of structures provide some tax shelter, it's not always in the form of a reduced tax burden for the business. Instead, corporations and LLCs help protect your personal assets from the business's tax and credit burdens.

While definite benefits exist for more formal structures, there's also something to be said for sole proprietorships and partnerships. If you are setting up a business on your own to provide a basic service, it might not be necessary to form an LLC. For example, if you are going to start a graphic design business and you plan to offer services that include creating logos and graphics for business websites, you might not form an LLC right away. Instead, you might work as a sole proprietor who is also a contracted vendor to clients.

Choosing the right business format can help you save money and hassle in the future. A business attorney can also help you understand whether you can make changes to your business structure in the future as your business grows and how you can best plan for that growth.

Source: California Secretary of State, "Starting a Business – Entity Types," accessed Sep. 02, 2016

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