Starting a retail business is exceptionally challenging for new business owners.

The reason for this being that you need to get everything done correctly and in order, from finding and sourcing the products to running your daily operations.

Among all of this, it’s important to understand which business structure is the right fit for you.

Legal entities can define your business, its rights, operational requirements, and more.

What’s more?

These business entities also come with their set of pros and cons. So, it’s absolutely critical that you select the right one for your business.

To help you make the right choice, we’ve put together this detailed guide with pros and cons for each entity.

1. Sole Proprietorship

Sole Proprietorships work the best when you want to start a retail business on a small scale. One of the major reasons for this is that there’s little paperwork involved.

Also, they’re relatively easy to form and maintain. You don’t need to pay corporate taxes either.

And the best part is that all the income is passed through to the personal income of the business owner.

However, if you want to open multiple stores, this may not be the best bet for you. Additionally, your personal assets aren’t protected from liabilities.

2. Limited Liability Company (LLC)

LLCs, as the name suggests, are companies where your personal assets are protected from business liability.

Additionally, unlike Sole Proprietorships, it’s a separate legal entity. Your income is also passed on to your personal income tax returns just like Sole Proprietorships. This effectively saves you from double taxation.

However, the process of starting an LLC is slightly more complicated. Additionally, you might find it difficult to go public or distribute employee shares.

You’d also have to pay self-employment taxes, even though you’d be saved from corporate taxes.

3. Corporations

Corporations are separate legal entities, just like LLCs. One of the reasons why you should pick a corporation as the go-to entity for your retail business is the fact that they provide the best liability protection.

Additionally, scaling your business up is the easiest in Corporations. Be it raising funds or distributing employee shares, Corporations have provisions for it all.

Starting a retail business and growing it can also open the doors to creating franchises. That’s where Corporations help too.

But there are several drawbacks to Corporations as well. They’re difficult to operate and require a significant time and monetary investment.

Also, your income can get bogged down by the high corporate taxes.

You also need to hold annual general meetings and have comprehensive records. This can make it challenging to operate a Corporation.

Over to You: Choose Your Business Entity

Finally, the choice of business entity for your retail business rests with you. You need to carefully assess your requirements, your future growth plans, and then see which entity satisfies those. Accordingly, you can make your decision.

And if you find it challenging to start your retail business, you can leverage the services of GovDocFiling.

To understand more about these business entities in detail, check out this infographic below.

Starting A Retail Business