How to choose the right company
So, after coming up with ‘the great idea’ many enthusiastic future entrepreneurs get stuck. On: how to choose the right company? If you do not happen to be a lawyer, or have one in your close environment, it might feel difficult to navigate your way.
So let’s start with some simple distinctions. Wherever you live, chances are your choice is between:
- Sole proprietorship (alternative of this type is almost in every country): it basically means that you operate your business under You. This is a form which is often – very wrongly! – recommended for its simplicity. The one big reason why you should stay away from this one – is joint liability. In lay terms it means that you are liable with all you have – be it your house, family savings, car, pension savings – all. The risk is simply too high so I would very strongly recommend you – NOT TO CHOOSE this one. It is simpler from administrative point of view, and yes, you file only one tax return, but to put at stake for your starting business all that you have – is simply too high.
I often hear from clients that this is recommended form .. until the business makes at least X amount of revenue per year… WRONG. The risk of risking all you have is not dependent on the profits. And yes, the sooner you generate profits, the better, of course. But profits and risks are too different things. Also, if in the future you want more business partners or sell your business – with this choice you are not very flexible.
- Limited liability company (Ltd, GmbH, BV) again, available in every country – this is the simplest legal form of a corporation. So You and Your company – are separate entities. Little more administrative requirements – you typically need to ask for incorporation specialized company / notary, in the future file separate tax returns, and some countries have minimum required capital. One overriding advantage of this choice – the company has separate assets and liabilities – and you do not put your own assets at risk. The company is liable with its own assets.
- Public liability company – you can publicly trade the shares, typical minimum capital requirements are higher and the ongoing administrative requirements are more complex then with limited liability company. Very rarely needed at the start.
So, if in doubt, do schedule an appointment with your local lawyer, but if you go with limited liability company – you are safe and ready to build successful and profitable business.
Nowadays, the competition for incorporation is quite high, so do spend some time online to search for the best offers for incorporation (it is very routine task), minimum capital requirements in most countries went very much down and – protecting your assets – and safeguarding your future business – is worth the additional investment. Be penny, but also, pound wise.