Starting a Retail Business: Which is the Best Entity?

Are you planning on starting a retail business?

Then you likely already have a lot on your plate. From finding suppliers to creating supply chains and recruiting employees, there’s a lot that goes into starting a retail business.

And if that wasn’t enough, there’s also a whole lot of legal stuff that you need to do to formally establish your retail business.

One of the major things that need to be done here is the selection of your business entity. This is an important decision because each structure comes with its own set of pros and cons.

So, which one should you choose for your business?

Let’s find out.

Choosing the Right Business Structure

Here are the various business structures and how you can choose them.

1. Sole Proprietorship

If you’re planning to start a retail business all by yourself, a Sole Proprietorship firm might be the best option for you. The reason here is that they’re only meant to be run by a single person.

Additionally, all the business income gets passed through to you. This means that you’ll be saved from double taxation.

What’s more, Sole Proprietorships are easy to form and manage. This makes them attractive options for starting a retail business.

But there are some drawbacks too. The biggest one is that you’ve got complete liability from business losses. Additionally, expanding the business can be challenging as it’s not easy to raise funding.

Finally, you can never get partners for this business.

2. Limited Liability Company (LLC)

A Limited Liability Company brings to you the best of all types of business structures. You can have as many partners for your retail business when you start an LLC. Additionally, the process for starting an LLC is fairly straightforward. You just need to leverage the LLC formation services of GovDocFiling and you’re all set.

Additionally, all the income of the business is passed through to the owners. This saves you from double taxation as well.

What’s more, it offers liability protection. This means that your personal assets would be shielded from the liabilities of the business.

This can especially be helpful when running an inventory-intensive retail business.

That said, LLCs have some drawbacks too. You will be required to pay self-employment taxes. Additionally, expansion of the business is still slightly challenging as you can’t distribute employee shares and might find it challenging to go public.

3. Corporation

Corporations are separate legal entities, just like LLCs. However, they’re a lot more versatile and complex. The biggest advantage of Corporations is that they provide the best liability protection among all the types of structures.

Additionally, the structure makes it easy for you to expand your business by getting investors or going public. You can also issue employee shares with ease if you run a Corporation.

But what makes them great for retail businesses is that you can easily launch franchises and open multiple storefronts.

However, Corporations have strict guidelines and reporting requirements. This makes it challenging to run them. Additionally, they’re costlier to start and there’s a lot of paperwork that needs to be done too.

Finally, you’re subjected to double taxation when you choose to start a retail business as a Corporation.

There’s a lot more that you need to consider before choosing the right business structure for starting your retail business. Check out the infographic below by GovDocFiliing that explains it all.

Brett Shapiro is a co-owner of GovDocFiling. He had an entrepreneurial spirit since he was young. He started GovDocFiling, a simple resource center that takes care of the mundane, yet critical, formation documentation for any new business entity.