What is the Best Entity For Starting A Retail Business?

Global retail sales are predicted to grow to over $31 trillion by 2025. However, opening a retail business doesn’t guarantee success.

You need to choose a business entity that’ll make it easy to maintain a compliant retail business while also supporting growth.

Let’s look at the three main three business entities and what each one offers.

Sole Proprietorship

A Sole Proprietorship is easy to form and maintain, and you don’t have to think about corporate taxes. The income of the Sole Proprietorship passes through to your personal income.

However, there are two downsides to Sole Proprietorships you should think about:

• It lacks liability protection.
• If you want to expand your retail business into a franchise in the future, a Sole Proprietorship business structure will not support this expansion.
• It’s not easy to raise funds.

Limited Liability Company

A Limited Liability Company is fairly easy to form and maintain, but not as easy as a Sole Proprietorship. With an LLC, you’ll need to file Articles of Organization with your Secretary of State and pay annual state filing fees.

An LLC provides liability protection that safeguards your personal assets. However, it’s important to separate personal finances and those of the retail business to enjoy it.

You can also have multiple retail businesses under one LLC and the income of the LLC passes through to the members, just like Sole Proprietorships.

Some weaknesses of LLCs you should consider are:

• They are subject to self-employment taxes.
• You cannot go public or issue employee shares.

Corporations

A Corporation provides the best liability protection among all the entities.

It also provides the best opportunities for the growth of your retail business. You can issue stocks, build a franchise, open and run multiple branches, and secure funding with ease.

However, Corporations are subject to a few drawbacks:

• Corporations are complex. They demand extensive record-keeping and reporting. A business formation specialist can help with the Corporation formation.
• You’re subjected to double taxation.

Pick the Best Entity for Your Retail Business

If you’re looking for a simple business structure that’s easy to form and maintain, a Sole Proprietorship makes for a great choice.

But if you’re looking for the best liability protection and a lot of room for future growth, Corporations are for you.

LLCs provide liability protection and a little flexibility for future growth while also being fairly easy to form and maintain, making them great for medium-sized businesses.

For more information on what each business entity offers, check out this infographic by GovDocFiling.