The business structures you can choose, a quick guide

In most countries there are several different business structures available. For most people starting out, the choice usually comes down to a handful:

• Sole proprietorship / sole trader, the simplest form. Not a separate legal entity; the owner is personally liable for contracts and debts. No capital requirement, no annual report, no auditor required. Just a year-end statement.
• Partnership, at least two owners. A separate legal entity in most jurisdictions, but partners are personally liable for debts if the partnership cannot pay. No capital requirement, usually no audit requirement.
• Limited partnership, variant of a partnership. Liability for debts applies only to general partners; limited partners are only liable for their invested capital.
• Limited liability company (LLC / Ltd / AB), the most common form. Separate legal entity. Capital requirement (in Sweden, SEK 25,000, about €2,200; in the UK, just £1). Number of owners is unlimited. Annual reports required. Audit required, with exceptions for small companies.
• Cooperative / economic association, at least three owners (in most jurisdictions). Separate legal entity. Capital contribution (money or labour), annual report and auditor required.

All structures provide pensionable and benefit-qualifying income, but it is calculated differently. Tax forms, taxation methods, and how profit/loss is distributed also differ. So does name protection.

Three questions to help you find the right structure

If you are starting alone, the choice is usually between sole proprietorship and limited liability company. If you are starting with others, the main options are partnership, LLC or cooperative.

1. How ambitious are you? Are you testing the waters or running on a small scale, choose the form that is easiest to get going. Sole proprietorship or partnership usually works better. Is it a big push with plans for hiring and international expansion, go straight for the LLC.

2. What is simplest and cheapest? LLC is not automatically best. If you can manage as a sole trader you skip annual reports, save money and save time. The capital you would lock into an LLC could instead go to marketing.

3. What do customers and suppliers expect? LLC carries a certain authority. If you operate in an industry where trust matters extra, or you have suppliers with strict requirements about who they do business with, an LLC may be worth it from the start.

Remember: you can always change business form later. You do not have to live with the choice forever. Do not get stuck in the comparison swamp, get started.

Requirements and registration

Depending on industry and form there are different requirements and permits. Most countries' company registration sites offer good checklist tools, pick your business structure, answer a few questions, and start ticking off.

With the choice of business structure behind you, you have taken one of the biggest steps toward making your idea real. Onward!