The latest buzzwords in business news is diversification and adaptation as small businesses became very creative in keeping their doors open during crisis times. Diversification can contribute to business growth through expanding or varying the range of products or services that is on offer. This could include adding value-added products and services or even introducing a different line of products and services.

Adaptation is another factor that is important to long-term success of a business. In today’s economic environment it means altering business operations and modifying existing products and services to meet the needs of customers in this rapidly changing world. Remote workers, telehealth calls, curbside pickup and delivery and online stores are all examples of how business adapted.

When selecting a business structure it is important to consider how diversification and adaptation will come into play in these structures.

Sole proprietorship
This is the most common business structure as it is easy to form. Although the owner has complete managerial control, he or she is personally liable for all financial obligations of the business. These businesses can be formed at low cost and is a highly flexible business structure.

Partnership
Two or more people agree to share in the losses or profits of the business. Each partner is personally liable for the financial obligations of the business. Profits and losses are “passed through” to partners to report on in their individual income tax returns.

Corporation
The corporation is a separate entity from those who founded it. The corporation can be taxed and held legally liable for its actions. The biggest benefit of this business structure is the avoidance of personal liability, but requires extensive record keeping. Double taxation can be a drawback, but two variants of the corporation (S corporation and C corporation) can help to avoid this by allowing income or losses to be passed through on individual tax returns.

Limited Liability Company (LLC)
The LLC allows owners to benefit from both the corporation and partnership forms of business. Profits and losses can be passed through to owners without taxation of the business, while owners are protected from personal liability. This protection is not absolute, as in certain instances the corporate veil can be pierced. The LLC does require a registered agent. The registered agent is a person or entity who is appointed to accept service of process and official mail on behalf of the LLC.

Factors to Consider
Apart from choosing the type of business structure, there are other considerations the entrepreneur and future business owner need to make. Some business forms can shield owners from legal liability and the potential business owner needs to decide to what extent they need to be insulated from legal liability.
Each business structure has different rules regarding tax implications, and opportunities to minimize taxation should be considered. Business structures like the LLC and corporation may offer more opportunities to minimize taxation than a sole proprietorship, but may have a higher cost of formation and require more administration.

When it comes to considerations of flexibility, diversification and adaptability some business structures are less rigid than others. The sole proprietorship can adapt as quickly to change as the owner is willing to, whereas the LLC, corporation and partnership would require a consensus among owners and founders before change can be implemented.

Another consideration, and perhaps the most important one, is work-life balance. Some business structures and startup ideas require more time commitment from entrepreneurs than others. Consider for a moment the time investment that goes into a corporation versus a freelance writing startup. The corporation will command more time in this scenario, therefore one needs to be realistic about the time investment each business structure requires.

Deciding what happens to the business when you are no longer around to run it should be carefully thought about. The sole proprietorship and partnership may dissolve upon death of the owners, whereas a corporation can be distributed to family members if applicable. The business structure the entrepreneur starts out with may not suffice in the years to come as the needs of customers, clients and business owners change. Many sole proprietorships evolve over time into partnerships or corporations to meet the changing needs of their customer base.