Which Entity is Best for Starting a Retail Business?
Choosing a business structure is one of the most important steps of starting a retail business as it can change the way you do business.
From how your business is taxed to how much control you have over day-to-day operations, can vary with different entity types.
So, which business structure should you choose for starting a retail business?
Well, you can choose among Sole Proprietorships, LLCs, and Corporations. However, remember that there is no single answer as to which of these is best for starting a retail business.
Because your choice should be based on your particular requirements ,preferences, and future goals, not some one-size-fits-all guide. So, it’s best to compare and contrast all these business structures and then choose the right one for starting a retail business.
Let’s discuss each in more detail.
Table of Contents
1. Sole Proprietorship
This is the best choice for small, family-owned retail businesses that intend to operate on a small scale. So, you can start a Sole Proprietorship if you intend to run a handicrafts business, thrift store, etc.
Here are some characteristics of a Sole Proprietorship that you should know:
- The business is not a separate legal entity and is taxed as part of the sole proprietor’s personal income
- The owner bears the sole responsibility for the business profits, losses, and legal liabilities
- It gives the entire operational and administrative control to the owner
- Sole Proprietorship is the easiest business to form with very less paperwork
LLCs offer the best of both worlds as they have the scalability of a Corporation along with the flexibility of a Sole Proprietorship. With an LLC, you can expand your retail business without having to risk your personal assets.
Here are the key characteristics of an LLC:
- LLCs can be taxed both as a Sole Proprietorship and a Corporation
- The profits, losses, and liabilities are shared between the members of an LLC
- Members can be both individuals and institutions, but not banks or insurance companies
- There can be single-member LLCs and multiple-member LLCs
- These require more paperwork than Sole Proprietorship for starting a retail business
Corporations are the best choice for starting a retail business on a large scale. If you want to operate a multi-regional retail business with different outlets, then Corporations are the way to go.
Here are the key characteristics of Corporations:
- The business is a separate legal entity and is taxed separately
- The owners’ personal assets are protected in case the company fails
- It is easiest to secure funding for a Corporation, which helps in expanding the business
- It is easy to go public and issue shares
Which One Will You Choose for Starting a Retail Business?
All three of these are good choices for starting a retail business. Compare their features, pros, and cons, and your future goals, to make the final decision.
Need a detailed list of pros and cons for each of these business structures?
Check out this infographic to find exactly that.
Infographic via: GovDocFiling.com
Also Read: What Are The Main Modules Of An ERP