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Questions to ask when you’re choosing a business structure

On Behalf of | Aug 27, 2021 | Business Formation

When you’re starting a business in Massachusetts, you need to choose a structure, which is what determines your tax rules. A sole proprietorship is the easiest type of business to start, but it has its downsides.

How likely are lawsuits in your industry?

Sole proprietorships don’t offer you personal protection from lawsuits in the same way other business structures do. If someone sues you, your personal property is at risk. You will have to pay fees and debts out of your own money and assets. With a different business formation, the business is a separate entity from you, providing some protection of your personal property.

Are you the only owner?

If you are partnering with someone, then you can’t set up a sole proprietorship. Your options in business formation entities include partnership, LLC and corporation. A lesser-known entity is the co-operative, which means that the people it serves are also its owners.

LLCs are easier to set up than corporations, but you need to check state law to know what you need to do and how much the filing fee is. Most states have a small filing fee, but Massachusetts is one with a heftier cost. An LLC in Massachusetts costs $500 to form and involves an annual report fee of $500.

Do you want primary control?

If maintaining primary control over the business is essential to you, then an LLC, a partnership and a sole proprietorship are the best choices. For a partnership and an LLC, you need to clearly outline in your organization documents that you maintain primary control. Get specific about the control you have over the business to avoid legal situations in which your partner is able to do something without your permission.

Thoroughly research the type of business structure you choose to ensure that you stay in line with all of the legal implications. You want to protect your interests and have confidence that you didn’t miss a crucial piece of information.