Choosing your business structure is a hugely important step in your entrepreneurial journey. Whether you’re an LLC or Sole Proprietor, C-Corps or Partnerships, your business structure will impact how you pay your taxes, distribute your profits, and even your day-to-day operations!
So how can you be sure you pick the right one? Here are some of our top Dos and Don’ts when it comes to choosing the best structure for your creative business:
DO: research key differences between business structures
Choosing the right business structure starts with understanding what each of them means and how they differ from one another. A quick Google search might have you combing through page after page of complex jargon and legalese, but let’s break it down to basics.
There are four main business structures: Sole Proprietor, Partnership, S-Corporation, and C-Corporation. These aren’t the only structures you have to choose from but they are the most common and they differ in five main ways:
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The number of owners
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Liability protection
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Tax filing method
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Tax responsibilities
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Typical bottom line profit range that’s suited for this type
See the table below for a breakdown of these key qualities for each structure.
DON’T: copy what someone else does
There are a ton of different reasons you might choose a certain business structure. It could come down to how much personal liability you’re willing to take on, how you’d like to pay taxes, or what your bottom line profit goals are.
The only bad reason to choose a business structure is that it’s what someone else chose.
This is a highly personal decision. Even if another entrepreneur is in the same industry, has a similar mission, or shares other attributes of the business you’re building, you have no idea what behind-the-scenes factors impacted their decision. Keep your eyes on your own work and focus on what makes sense for you and you alone.
DO: consider tax implications
Let’s state the obvious: you want to keep as much of your hard-earned money as possible. You deserve to! And like we said before, the structure you choose for your business will directly impact how you file and how much you’ll pay in taxes.
That’s why we created the Structure That Suits Analysis. By answering a range of questions about your business and goals, this tool calculates your effective tax rates for each different structure so you can see exactly what’s best from a tax advantage perspective.
It’s available, along with several other helpful tools, as part of our free Minding Your Business: Mini Course that breaks down all the most important steps of starting and scaling your dream creative business. From mindset to business models, accounting to protecting your intellectual property, we’re answering all your burning questions.
Sign up for free here.
