Selecting a Business Entity 

What business entity best suites how you conduct business?  

Proper structure is vital to business expansion, growth and success. I utilize the process of legal analysis while coaching my clients as they brainstorm their ideas for opening and expanding their businesses. We talk about all aspects of business, so that they can efficiently invest their time and finances in their ideas and goals. We use the same process when we discuss the pitfalls of businesses that have outgrown their original structure and need a fast transformation. 

A consultant I know formed his business as a sole proprietor. Business grew smoothly, until he developed a successful program. He suddenly realized that he needed a “bigger” business entity that could handle all of his services and products. 

Before you set up your business, research how you will successfully manage it. When I talk with clients, we discuss all aspects of their work and where they will be in one, five and ten years. While we talk about start-up, we simultaneously discuss winding down. What you need to do six months before and on opening day?  What will your business look like on its one-year anniversary?  

In the state of Washington, you can operate a business as a sole proprietor, some form of partnership, a type of corporation, or a form of a limited liability company (LLC). What form you choose will control, among other aspects, how your business files taxes, how income passes to you, liability, and legal rights. 

The entities are governed by different rules and regulations. Most people do not like the perceived hassles of a corporation or LLC, but once formed, both are relatively easy to maintain. 

What type of business are you in – service, products or both? What is your business vision? Do you want to work alone and when you are done with your business, simply shut it down? Do you want to have an office staff but be the only service provider? Do you want to have associates whom you train and a full support staff? Do clients come to your office or do you go to theirs? 

The answers to these questions help determine which entity best suites your needs. If you work alone and do not care about transferring your business to someone else, then a sole proprietor may be the best choice. If you will have employees, then you may want to incorporate or form an LLC. If you plan to sell or transfer your business to another owner, choose an entity that can easily accomplish those transactions.  

The above questions focus mainly on you.  This next question puts the focus on your clients: what business entity will your clients (present and future) respond most favorable to? 

I incorporated because I provide a variety of services (one-on-one coaching, group coaching, writing, speaking, teleclasses and workshops), and I selected the entity that could easily support those activities.  I selected an entity that would function smoothly regardless of who managed it.  Additionally, I wanted an entity that my clients respect and value. 

Most of my clients want to build businesses that are sustainable over time. They plan to transfer operations or ownership to someone and want to know that the transition will be smooth and beneficial to all parties.  

It is best to follow the same formal procedure whether transferring a business to a family member or a business colleague. Formal steps eliminate many problems. A faulty transfer can result in expenses and loss of productivity. 

What sort of liability could your business incur?  Can clients be injured while using your products? Do you give advice that is supposed to be followed?   

Business entities address liability differently. Consult a local business attorney about your specific business and its services/products. Your attorney will take all the facts into account, look at the laws in your state or country, and then determine what structure is best for you. Go to a lawyer that specifically practices in the area of business law. If you ask a friend who practices law in another area to do you a favor, you may not receive the most current or well-informed advice. 

Think about the details of doing business now and in ten years. Select the business entity that will support business growth and evolution.  

Do you want to discuss your business entity and its compatibility with future growth and expansion? Call me at 206.855.0612 or email me at karen@karenhallis.com to hire me as your coach or evaluate my coaching style with a complimentary coaching session.