Almost every new entrepreneur I meet is confused about the type of business entity they should register their startups as.

We rely on the advice of our CA and tax advocates to guide us through the process.

There are times, the advice of the “learned” Advisors might be just opposite to what your business actually needs.

My first venture was registered as a proprietorship firm.

I still remember my CA advising me to start a proprietorship firm and then register a private limited or a LLC, once the business has picked off well.

When I look back, I can say with confidence “It was a sound advice”.

The paperwork and compliances I have to deal with after converting our proprietorship firm into a private limited company are too big a pain.

Yes. We are a private limited company because of the emphasis business world attached to the word “company”.

But life was definitely simpler when we were a proprietorship firm.

Owning your own business is a huge adventure – and knowing which type of business to start can be one of the biggest decisions you have to make before opening your doors. Many people jump into starting a business without doing their homework on what type of business is best for them, which can have huge consequences down the road.

For example, many business owners start their business as a sole proprietorship and have to change down the road once the business takes on employees. Additionally, if your business begins to consider a partnership or taking on shareholders, changes will need to be made in order to accommodate and properly report those changes.

When choosing a business entity, it’s critical to have a forward-thinking view of your long-term goals so you, your attorney, accountant, and any business partners or shareholders can make the best decision.

I found an excellent infographic explaining the basics of a sole proprietorship, partnership, Corporation, and LLC, along with the differences between the two, and presents factors which might steer you towards one type of business, or away from another.

Infographics : business entity for startups

Source : Sure Payroll

The above infographic clearly defines the right approach to chose a business entity for your startup.

Although the infographic is developed keeping in mind the laws in USA, the fundamentals of which business entity are same irrespective of the country.

You can definitely follow the steps mentioned above while selecting the right business entity for your startup or small business.

Do not chose a certain business entity because your tax advisor asked you to do so. Do your research well, before you decide on a business entity.