How to Select a Legal Entity When Starting a Retail Business

In addition to this, it’s also important to choose the right business entity for your retail business.

The reason?

Each legal entity for your business comes with its own set of pros and cons. So, you must know which one fits your business requirements the best and choose that one. 

To help you with this selection, we’ve put together this guide. 

Let’s get started.

Selecting an Entity for Your Retail Business

Here are the major entities from which you can select the right one for your business. 

1. Sole Proprietorship

These firms are the easiest to form. You can start running a Sole Proprietorship under your name and establish your retail business. 

It’s got numerous benefits like no corporate taxes, less paperwork, and ease of operation. The income of the business is also passed on to your personal tax return.

However, this entity exposes you to unlimited liability and may not be the right fit for high-risk businesses. You also have to pay self-employment taxes and won’t be able to get any partners. 

2. Limited Liability Company (LLC)

LLCs are extremely popular among business owners for their many advantageous features and ease of operation. The biggest advantage of starting an LLC is that of limited liability. This way, your business losses won’t affect your personal assets. 

Additionally, it offers the same pass-through taxation feature as Sole Proprietorships. Also, unlike Sole Proprietorships, you can have multiple owners of an LLC (called members). These owners can be other LLCs, individuals, and even foreign firms.

However, they require more paperwork than Sole Proprietorships and you even need to pay state filing fees every year. 

You might find it difficult to scale your business, issue employee shares, or go public. Additionally, you’d have to pay self-employment taxes. To avoid these, you’d have to get taxed as an S-Corp. However, when you do so, you’ll be required to pay corporate taxes.

3. Corporation

Corporations are popular legal entities and are preferred by large-scale businesses. They offer liability protection just like LLCs and are great for scaling up your business. You can easily raise funds, go public, and even issue employee shares.

However, they’re not very easy to form. You also need to maintain solid documentation and convene annual meetings of all the shareholders. 

You also have to pay corporate taxes and personal income tax. This can cut through your profits and income. 

But this isn’t all that you need to know about these business entities. There’s more to them. To learn more, you can check out this infographic designed by GovDocFiling. 

Infographic via: GovDocFiling.com