Launching a new business is always an exciting adventure. However, starting this venture can be expensive, especially with limited capital.
Startup costs vary depending on the type of business you want to establish. The incremental costs from legal and registration fees can quickly pile up. If you don’t map out your initial expenses properly, you could pay more than what you predicted and already start on the back foot.
That said, looking for a low-cost business entity that will help you reduce your initial expenses and give your startup the structure it needs to grow and thrive would be best.
Below, we’ll explore the three most budget-friendly business entities you can form and their advantages and disadvantages. Learn how to launch your own business without breaking the bank.
3 Low-Cost Business Entities for Startups
There are three business entities you can form if you want to launch a business with limited funding:
Sole Proprietorship
Sole Proprietorship is the default business entity you get when you launch a new venture. The primary advantage of a sole proprietorship is its simplicity. It’s the simplest out of all business entities and is the easiest to form, making the process less intimidating for new entrepreneurs.
You don’t have to file any special paperwork with your state since you’ll run the business under your name. You also don’t have to pay annual fees to maintain it. However, the caveat is that sole proprietorships come with unlimited personal liability.
Since you’re running your business under your name, you will be liable for any debts or lawsuits it incurs. For example, if you took out a business loan to fund your first year of operations and defaulted on the loan, creditors can go after you and your personal assets. This lack of liability protection could become a major concern for your business once it picks up traction.
Partnership
Partnerships are another low-cost option you can explore. These business entities are formed by two or more people who agree to share ownership of the business. They’re relatively easy to create and maintain but, like sole proprietorships, come with unlimited liability.
Each partner can be held liable for any debt and other obligations the business incurs. Dissolving partnerships can also be difficult, especially if no formal agreement exists.
Limited Liability Company (LLC)
Limited liability companies (LLCs) combine the simplicity of sole proprietorships with the limited liability protections of a corporation.
LLCs are separate legal entities, unlike sole proprietorships and partnerships, which are connected to their owners. They exist independently from their owners. This setup protects you and your assets from any debt or lawsuit the company incurs.
In addition, LLCs also have flexible management structures. Depending on your needs and goals, you can choose whether you want your business to be member-managed or manager-managed. The only downside to this entity is that it’s more challenging to set up and maintain.
To form an LLC, you must file formation documents with your Secretary of State and pay a filing fee, which varies depending on where you are. You must also submit annual reports, designate registered agents, and pay annual fees to maintain the LLC. While LLCs are the most expensive option of all three entities, their limited liability protections are unparalleled.
Which Low-Cost Entity is Best?
The best low-cost entity for your business depends on your needs and goals. Although sole proprietorships and partnerships are easy to form and maintain, they have unlimited liability. If your business faces legal troubles or financial issues, you could be held liable for any debt or lawsuit it incurs.
LLCs, on the other hand, offer limited liability protection. Once you form an LLC, there will be a significant distinction between you and your business. Creditors and legal claimants cannot pursue your personal assets to satisfy the company’s financial obligations.
Ultimately, LLCs are the most suitable option for entrepreneurs who want to launch a business without exposing their personal assets to potential threats. But what about the costs of forming an LLC? Can you form an LLC for free?
How to Get Free LLC Registration?
Truthfully, it’s challenging to get free LLC registration. Most states require you to pay filing fees ranging from $35 to $500 and other additional charges. But the good news is you can reduce your startup costs by working with a company like Inc Authority.
Inc Authority is a business formation service provider known for its free LLC registration services. Their team of business formation specialists has helped hundreds of business owners register their LLCs for free.
When you work with Inc Authority, they will waive their service charges and overhead fees so that you only have to pay your state’s mandatory formation fees. Businesses like the Inc Authority help make LLC formation more accessible for business owners nationwide.
Conclusion
In conclusion, while forming entities like sole proprietorships and partnerships is easier and less expensive, LLCs offer significant advantages regarding liability protection, operational flexibility, tax benefits, and credibility.
Although an LLC’s upfront costs may be higher than those of the two first entities, the peace of mind and financial security it provides are worth the investment. It’s the perfect low-cost entity for entrepreneurs who want to build a strong foundation for their business.
