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Before selecting business form, what is important to consider? P.1

Building a successful business is not an easy matter, and a lot of planning and learning from mistakes go into it. Success is not always quick, either. Sometimes it can take years before a company is able to carve out a market and a brand for itself. To really make a business successful, a lot of things have to fall into place, and a lot of advice could be given about how to do this.

As a recent Forbes article points out, entrepreneurs who wish to be successful and build successful companies should make it their mission to understand their customers and their needs. This is good advice, of course, since it is ultimate customers who drive a business, and a business’ ability to satisfy customers will determine its success. Still, there are certainly practical, structural, strategic matters that must also be addressed in order for a company to succeed. Among these matters is the legal form a business takes. 

Although sorting through the question of what form a business should take is not always that exciting for entrepreneurs, it is an important one which can impact various aspects of the business, as well as an entrepreneur’s personal risk and financial return.

When considering which form of business to pursue, there are a number of things to take into consideration. One of them is protection from liability. Because sole proprietorships and partnerships do not offer liability protection, entrepreneurs who wish to keep their personal finances protected from business liabilities should steer clear of these forms. By contrast, corporate business forms and limited liability companies offer liability protections, and allow an owner to only put on the line the value he or she has put into and guaranteed for the business.

In our next post, we’ll look at other issues that should be considered before selecting a business form.

Source: Inc.com, “Choosing the Right Legal Form,” Jay Ebben, Jan. 1, 2005.

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