How to Start A Retail Business: 3 Entities to Consider

Choosing the best entity for starting your retail business dictates how the law recognizes its activities and ownership. Therefore, picking the best entity is critical as it determines the liabilities you’re responsible for and how you can scale your retail business. 

Here are the pros and cons of the entities available for your retail business. 

Sole Proprietorship 

Sole Proprietorships are your go-to entities when you need to start a small-scale retail business with the least paperwork. The low cost of starting and running also makes this entity the best option for low-risk retail businesses like grocery stores. 

Pros:

• Is easy to form due to less paperwork
• It is not subject to corporate taxes
• Business profits translate to personal income
• Has a low cost for formation and running

Cons:

• You shoulder all the business liabilities
• It limits the future expansion of your business 

Limited Liability Company 

A Limited Liability Company is the way to go if you are looking to enjoy the benefits of a Corporation and a Sole Proprietorship. For instance, while an LLC is a separate legal entity from you, you can still be its sole owner.

This way you are not personally responsible for your business’s liabilities when you register it. Additionally, if you start it in one of the best states to start LLCs, you’ll get even more advantages from it. 

Pros: 

• Can have single or multiple owners
• Being a separate legal entity, your assets are protected
• Business losses and profits pass through to your income, saving you from double taxation

Cons:   

• The formation is more expensive than a sole proprietorship and requires more paperwork
• May need to pay LLC taxes in some states
• Requires annual state filing fees

Corporations 

While Corporations have the best liability protection for their shareholders, they are the most complex and costly organization to set up on the list. 

Additionally, Corporations can easily raise capital by approaching investors and selling shares to expand their operations. 

Pros: 

• Ideal for business expansion and franchising
• Have better options for securing funding
• Offer the best liability protection
• Have the liberty of issuing shares 

Cons: 

• Have a tedious formation process
• Can be expensive to run for small businesses
• Strict regulations and requirements for shareholders
• Subject to double taxation

In the end, the choice of the best entity for starting a retail business comes down to the goals you envision for your business. Weighing the pros and cons of each will help you come to the right decision. To learn more about these entities, check out this infographic by GovDocFiling.

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Author Bio:

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.