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- Choosing a business structure is an important first step when starting a business. Each business structure has advantages and disadvantages. So which business structure should you choose? In this video, we will go over each of the business structures and give you an approach for how to decide on the business structure right for you. Keep in mind this is not business advice, but a means to help you explore the different business structures and help you decide which is right for you. If you are still unsure what business structure to choose, consult with an accountant. The first thing we need to talk about are informal versus formal business structures. Informal business structures are sole proprietorships and general partnerships. Informal business structures are simple to form and thus are a great way for testing a business in a low-risk environment. They allow you to see if a business will be successful before committing too much time and effort in creating a formal business structure. Informal business structures are also great if most of your starting clients are people you are familiar with. However, informal business structures do not have asset protection. What this means is that, if someone sues you or you default on a business loan, your house, your car or your personal savings are at risk. Asset protection is important when you are growing rapidly, have customers you don't know personally, when you are making a significant amount of money, or your business is inherently risky. Formal business structures provide credibility, personal asset protection, and help build business credit. So, if you are planning on having customers you aren't familiar with, or rapid growth, you'll probably want to choose an LLC or a corporation. As mentioned before, one of the biggest benefits to choosing a formal business structure is the personal asset protection it provides. In addition, formal business structures also add credibility to your business that informal business structures don't provide. Your two options for formal business structures are corporations and LLCs. Corporations tend to be more complex business structures and generally speaking aren't what you want as a starting business structure. Corporations also have double taxation, which means that your profits are taxed twice. Corporations are great if you are looking to raise money from venture capital or looking to list on the stock exchange. Corporations are also able to more efficiently carry money over between tax years to reinvest into the company. If you need money from professional investors or are looking to carry money over more efficiently between tax years, a corporation is the better choice. LLCs are a much simpler business structure, have a lot less paperwork, and are easier to start and maintain. They have pass-through taxation, which means your profits are only taxed once, and they have all the benefits of a formal business structure, including personal asset protection and increased credibility as a business. In general, it's more beneficial to start as an LLC when starting a small...