Seek Counsel Before Making Decisions
While a sole proprietorship is the optimal choice for many people starting small businesses, some people select this method primarily because it is the easiest way to start and open a business quickly. It is wise to sit down with both an attorney and an accountant and discuss the details of the business and where you see it in five or ten years. Cover all the bases including liabilities, taxes, employee benefits, and the need for investors before making your decision.
Start Small and Incorporate Later
While most businesses can only anticipate future returns, the business structure that protects personal assets and provides a favorable tax environment will be most attractive to investors. If, however, you do not need investors or are not seeking shareholders when starting up a business, you can do what many business owners have done and start small as a sole proprietor and incorporate later as the business grows.
Consider Liability Issues
The potential for liability from customer relationships or interaction impacts heavily on your liability risk. For example, someone who is opening a business that will sell goods to customers via the Internet or through mail order is less likely to garner lawsuits than someone who owns physical store locations, where customer foot traffic (and potential injuries) could result in such a lawsuit. However, many small business owners opt for coverage from insurance policies rather than going through the time and expense of incorporating.