3 Options Other Than Sole Proprietorship When Starting a Business

Starting a business can be an exciting and rewarding experience, but it’s also important to make sure you’re setting yourself up for success. One of the most important decisions you’ll make is choosing the right business structure. A sole proprietorship is the simplest and most common business structure, but it’s not always the best option. If you’re planning to start a business with more than one person, or if you want to limit your personal liability, you may want to consider one of these three options:

1. Limited Liability Company (LLC)

An LLC is a favorite choice among many entrepreneurs. It merges the protection of personal assets, like corporations, while maintaining the operational flexibility found in a sole proprietorship.

Here are some of the advantages…

• Personal Asset Protection – Unlike sole proprietorships, where the business and owner are seen as a single entity, an LLC provides a distinction. This means personal assets aren’t at risk in case the business faces liabilities.
• Tax Flexibility – Profits and losses are passed directly to the owners and are taxed on their individual income tax returns, preventing double taxation.

2. Corporation

Corporations are the go-to structure for larger businesses aiming for public stock issuance or attracting significant outside investments.

Here are some of the advantages…

• Liability Protection – Shareholders are generally shielded from corporate debts and liabilities.
• Capital Raising – Corporations can raise funds by selling stock, which can be enticing to potential investors.
• Endurance – The corporation continues to exist even if its owners or shareholders change.

3. Partnerships

This is suitable for businesses with multiple owners who wish to collaborate. Partnerships in Utah are usually categorized into General Partnerships (GP) and Limited Partnerships (LP).

Here are some of the advantages…

• Shared Responsibility – Partners can share both responsibilities and profits, reducing the burden on one individual.
• Tax Benefits – Just like an LLC, profits and losses flow through to the partners’ individual tax returns.
• Flexibility in Operation – Partnerships allow for a straightforward division of operations based on partners’ strengths.

Choosing the Right Business Structure in Utah

When choosing a business structure, there are a number of factors to consider, including:

• Taxation – Sole proprietorships and partnerships are taxed as pass-through entities, meaning that the business income is passed through to the owners and taxed on their individual income tax returns. LLCs can be taxed as pass-through entities or corporations. Corporations are taxed at the corporate level, and then the shareholders are taxed on the dividends they receive from the corporation.
• Ownership and Management – Will you be the only owner and manager of your business? If so, a sole proprietorship or LLC may be a good option. If you will have other owners or managers, a partnership or corporation may be a better choice.
• Future Growth and Investment – If you’re considering scaling your business or seeking external investment in the future, certain structures like corporations might be more appealing to potential investors.
• Flexibility in Profit Distribution – In certain structures like LLCs, there’s more flexibility in how profits and losses can be allocated among members, unlike corporations where it’s typically distributed based on share ownership.
• Duration and Continuity – Corporations and LLCs have a more seamless continuation even if an owner departs or sells their share. Sole proprietorships and partnerships might need to be dissolved and reformed in such scenarios.
• Exit Strategy – How you plan to end or exit your business in the future (e.g., selling, merging, passing to heirs) can also influence the type of structure you choose now. Some structures are easier to transfer or sell than others.

Guiding Your Business Journey

The path to entrepreneurship in Utah is paved with critical decisions. While a sole proprietorship might seem like the default choice for many, understanding the nuances and benefits of alternatives can be pivotal for your venture’s longevity and success. Whether it’s the asset protection of an LLC, the capital-raising prowess of a corporation, or the collaborative spirit of partnerships, each offers its unique strengths.

For those standing at the crossroads, unsure about which direction to take, seeking guidance from knowledgeable business lawyers in Utah can make a world of difference. Weber Law Group, a leading law firm in Utah, stands ready to illuminate your entrepreneurial journey, offering guidance in Utah business law and assisting countless ventures in making informed decisions.

Take the next step. Consult with a corporate attorney in Utah from the Weber Law Group and ensure that your business starts on the right legal foundation. Contact us today.