Business Structure Tips
When you start a business, one of the first decisions you will make is the type of structure you want. While many individuals start sole proprietorships or partnerships, others start with LLCs and corporations. However, your chosen corporate structure can have a major impact on your asset protection, taxes, and reputation. These are some tips to help you make this decision.
Create a Buffer Through a Trust
Your personal and business assets should be completely separated. You should have separate bank and credit accounts, and your business loans shouldn’t be personal. However, you can go a step further and establish a trust that holds your business. A well-structured trust gives you control over your business without the risk to your assets. Although they can be expensive to set up, trust can save you significantly if your business is ever threatened.
Start With an Operating Entity
It is easy and quick to set up a sole proprietorship or partnership. However, these business structures don’t give you the protection that an LLC or corporation offers. These structures are separate operating entities. They also suggest that you want to build an actual business rather than simply increase your income.
An LLC or corporation takes the business out of your name and reduces your exposure to your company’s responsibilities. They also provide you with greater tax benefits and are easier to buy and sell in the future.
Create a Retirement Plan
Self-directed or solo 401(k) programs are available for small businesses. They allow you to save up to $50,000 each year, which can significantly reduce your tax burden. In addition, these funds are secure and protected from business or personal lawsuits. You can even file for bankruptcy and maintain these retirement accounts.
Maintain Your Intellectual Property Personally
Intellectual property doesn’t just include proprietary software or inventions any longer. Your website and phone number are also included. You may think that these types of properties don’t matter, but imagine building a strong business and then being sued by a competitor. If you lose, you also lose your phone number, patents and trademarks, and website.
Therefore, instead of building your intellectual property through your company, do it through you personally or through a trust. You can lease these assets to your company through a licensing agreement.
Starting a business is time-consuming, exciting, and overwhelming at times. However, during the process, don’t forget to protect yourself and your assets, build a strong foundation and adopt an appropriate corporate structure.