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Which Legal Structure is Best for Your Retail Business?

3 Min Read

Before choosing a legal structure for your retail business, you need first to understand your options. The right business structure will set the tone for your new or ongoing business, whether you’re starting an LLC in Arizona or an LLP in Michigan.

Your business structure will determine:

  • Your ability to raise funds
  • How you’ll be taxed
  • Ease and cost of business formation
  • Your business and personal liability

This post discusses the three most popular legal structures for starting a retail business. Here’s all you need to know.

1. Sole Proprietorship

A Sole Proprietorship consists of one person, who is solely responsible for every aspect of the business. It’s the simplest business structure.

A sole proprietor is in complete control of their profits and losses. This business structure is suitable if you want to be your own boss.

Here are the advantages of a Sole Proprietorship:

  • Easy to set up/terminate: The paperwork involved in setting up a Sole Proprietorship is minimal and it’s just as easy to terminate.
  • Low setup cost: You will only need to pay for licensing fees and taxes.

The downside to having a Sole Proprietorship is that you’ll be responsible for all your company’s losses and liabilities.

2. Limited Liability Company (LLC)

An LLC is one of the most popular business structures for startups in the US today. It lets you have the benefits of a Sole Proprietorship, Partnership, and Corporation.

Here are some advantages of forming an LLC:

  • Limited liability: Your business exists as a separate legal entity, so you’re not liable for company debts.
  • Taxation: LLCs are not subject to double taxation like Corporations. You can choose to have your business taxed like a Sole Proprietorship.

As opposed to Sole Proprietorships, there’s more paperwork involved in an LLC formation.

3. Corporations

It’s the most complex business structure to set up and run. Corporations are suitable for already growing businesses as opposed to small startups.

They collect information about visitors’ online behavior and buying patterns. Online retailers do this because they want to improve their shopping experience.

Here are the advantages:

  • Limited liability: Corporations are separate legal entities from their owners and provide complete liability protection to owners.
  • Fundraising: You can easily get funding for Corporations compared to any other business structure.

You do, however, need to pay corporate taxes as well as personal income taxes, if you form a Corporation.

Which Entity is Best for Your Business?

Before you decide on the best entity, consider your business plan for growth both financially and structurally.

The infographic below will simplify your understanding of the entities discussed above.


Infographic via:
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