What is the Best Entity for Starting a Retail Business?

Taking the time to research the right entity for your new retail business is one of the best decisions you’re making.

But first, assess your needs as a business owner and those of your retail business.

So, let’s see what each entity offers.

1. Sole Proprietorship

This is an unincorporated entity known for its simplicity.

You can be the only owner of this entity and all the profits and losses of the business will be yours as there’s no liability cover.

When Should You Establish Your Business Under a Sole Proprietorship?

If you want to avoid the complication of forming a legal business structure, a Sole Proprietorship is the perfect choice. It’s also easy to run and you’ll not have to pay corporate taxes.

However, due to the lack of liability protection, it’s best if you start a Sole Proprietorship for a small scale business. You’ll also have a hard time expanding your retail business to a franchise in this case as funding isn’t easy to get.

2. Limited Liability Company

A Limited Liability Company (LLC) is a business structure formed by filing the Articles of Organization for your business.

When is a Limited Liability Company Right for You?

Like a Sole Proprietorship, you’ll not pay corporate taxes in LLCs, but you may be subject to other taxes depending on the location, so choose the most cost-friendly state for LLC formation.

A Limited Liability Company also makes it easy to open multiple storefronts as you’ve got liability protection. Additionally, funding is easier to get as it’s a legal structure and can have multiple owners. 

However, an LLC is not right for you if you want to go public or distribute employee shares. It’s not the best structure for franchising either.

3. Corporation

A Corporation is one of the most reliable structures you can form for your retail business. It’s formed by filing the Articles of Incorporation.

When Should You Set Up a Corporation?

If protecting your assets is high-priority, a Corporation offers the best liability protection, mainly because it’s a separate entity from its owners.

If you want to raise additional funds by going public, a Corporation makes it possible. You can even get franchises and multiple branches for your retail business with this business structure.

However, these advantages come at the cost of a complicated formation process and corporate taxes.

To learn more about these business entities and to figure out which one’s the best for you, check out this infographic by GovDocFiling.