Choose the Right Company Structure
Choosing your company structure is one of the first and most important decisions for your startup. It affects everything from liability and taxes to opportunities to bring in investors.
Limited Liability Company (LLC)
LLC is the most common structure for startups with growth ambitions.
Advantages:
- Limited personal liability
- Easier to bring in external investors
- Professional image
- Possibility for employee stock options
Disadvantages:
- Requires initial capital
- More administration and accounting
- Double taxation (company + dividends)
General Partnership
General Partnership suits partnerships where two or more run a business together.
Advantages:
- Easy to start
- No capital requirements
- Simpler accounting than LLC
Disadvantages:
- Unlimited joint liability for owners
- Harder to bring in investors
- Complex to buy out partners
Limited Partnership
Limited Partnership is a hybrid form that combines aspects of general partnerships and limited liability companies. It consists of at least one general partner (with unlimited liability) and one limited partner (with limited liability).
Advantages:
- Flexible ownership structure
- Limited partners have limited liability
- No capital requirements
- Easier to bring in passive investors than general partnerships
Disadvantages:
- General partner has unlimited liability
- More complex structure than general partnerships
- Less common, which can create uncertainty
- Harder to bring in active investors compared to LLC
Sole Proprietorship
Sole proprietorship is the simplest form and suits solopreneurs in the beginning.
Advantages:
- Very easy to start
- Minimal administration
- No capital requirements
Disadvantages:
- Unlimited personal liability
- Difficult to scale and bring in investors
- Less professional image
Comparison of Company Structures
| Company Structure | Liability | Starting Capital | Best Suited For |
|---|---|---|---|
| Limited Liability Company (LLC) | Limited | Required | Startups with growth ambitions and investors |
| General Partnership | Unlimited joint liability | None required | Partnerships without major risks |
| Limited Partnership | Mixed (general partner unlimited, limited partner limited) | None required | Businesses with active and passive owners |
| Sole Proprietorship | Unlimited personal liability | None required | Solopreneurs and small businesses |
Recommendation for Startups
For startups with growth ambitions, we strongly recommend Limited Liability Company (LLC) as your company structure. An LLC gives you the best conditions to:
- Bring in external investors and venture capital
- Protect your personal finances with limited liability
- Build a professional and credible company image
- Implement stock option programs to attract and retain talent
- Scale your business effectively
If you're in an early phase and want to test your idea with minimal cost, you can start with a sole proprietorship. But plan to form an LLC as soon as your business gains traction and you want to bring in partners or investors. The transition becomes easier the sooner you make it.