Starting a Retail Business: Which Legal Structure to Choose

Last Updated on February 21, 2023 by Admin

Starting-A-Retail-Business

Infographic via: GovDocFiling.com

Is it your dream to start a retail business in the US? You are not alone. Tens of thousands of people start new businesses every year and many of them are quickly successful. 

As exciting as it is, starting a retail business is no easy feat. As an entrepreneur, you have to make decisions that will directly or indirectly affect your business

Fortunately, you can be well informed and prepared to build your business in a way that it will stand firm and blossom in good and bad times.  

One of the most important decisions while starting your retail business is to choose the right business structure. It will directly impact your business’ finances, tax payments, policies, and several other aspects. 

In this post, we will discuss the most popular legal entities to help you choose the right one for your business

So, let’s get started. 

What are the Three Most Popular Business Entities in the US? 

Although there are several business structures you can consider while starting your retail business, here are the three legal entities you can consider. 

1. Sole Proprietorship 

Among all the legal entities, a Sole Proprietorship is the simplest one. In a Sole Proprietorship, the owner is in the driver’s seat and has complete control over the company’s operations. 

It’s the best option for handmade crafts and customized gifting businesses, niche farmers, boutique owners, and any other type of small business

The paperwork and registration fee for forming a Sole Proprietorship are minimal, but can still feel overwhelming to a new entrepreneur.

If you don’t know the legal procedure, you can seek the help of professionals like GovDocFiling to register your business. They will not only take care of all the paperwork but also expedite the process.

What the sole proprietor earns from the business is regarded as his personal income and thus he does not pay corporate tax. 

A sole proprietor is personally responsible for the business debts and obligations and, thus, their personal assets are at risk if the business fails.

2. Limited Liability Corporation (LLC) 

A Limited Liability Company or LLC brings you the best of both worlds – the flexibility and control of a Sole Proprietorship and the personal asset protection of a Corporation. That’s probably why an LLC is the most preferred business structure for starting a retail business

Compared to a Corporation, an LLC requires less paperwork and is easier to operate. It is more structured compared to a Sole Proprietorship and thus it is easy to divide responsibilities among owners. It is considered as a “pass-through entity” for taxation which exempts it from double taxation. 

There could be one or more owners who share responsibilities and profit among themselves. If you are looking for a legal structure that brings you a blend of flexibility and security, LLC is the top choice for you. 

3. Corporation

A Corporation is a legal entity under state law. The owners are the shareholders who purchase shares in a Corporation. The owners are, fundamentally, investors and do not necessarily take part in any of the day-to-day business activities. 

Corporation owners enjoy limited liability as the entity is considered independent of its owners. It will continue to exist and operate even after the death of the owners. 

Having said that, a Corporation is not the ideal business structure for everyone, especially for a small business. It involves extensive tax filing and is liable to double taxation. 

However, it is easy to scale up a Corporation. So, it’s a good option if you want to start a large-scale retail business.

Which Legal Entity is Best for Your Retail Business? 

Now that you have a fair idea about the top three business structures in the country, it is easy to choose the one that meets your requirements the best. If you still want clarity on the pros and cons of these entities, check out this infographic by GovDocFiling. 

Making the right choice can give your business a structurally and financially stable beginning. Once you begin well, you are bound to flourish and grow.

Author Bio:

Brett ShapiroBrett Shapiro is a co-owner of GovDocFiling. He had an entrepreneurial spirit since he was young. He started GovDocFiling, a simple resource center that takes care of the mundane, yet critical, formation documentation for any new business entity.

Andrew is a passionate blogger who loves to write about fashion, health business etc. I shares insights, ideas, and stories to inspire our readers.