You may know the difference between business structures, but are you aware of the financial pitfalls that you can encounter if your business is set up the wrong way? Read more to find out what these are and how to avoid them.

You may know the difference between business structures, but are you aware of the financial pitfalls that you can encounter if your business is set up the wrong way? Read more to find out what these are and how to avoid them.


You have a few options when it comes to organizing your legal business structure – sole proprietorship, partnership, incorporation. Refresh your memory on the differences between each one and evaluate if you need to restructure or just keep an eye out for potential costs.

Please remember that this does not constitute legal advice and does not replace consulting with a qualified legal advisor. If you need help, we compiled a few affordable legal resources for you.


Nobody wants to think about the “T” word, but it is important to consider – Get the worst out of the way first! Taxes do vary between different business structures, and you should consider costs (and hopefully savings) related to your small business’ structure.

Sole proprietorships and partnerships file business and personal taxes as one. Corporations are separate entities that require separate tax filings. Depending on your business’ structure, you will have different costs.

For example, say you are the sole proprietor or a partner. Good news: Your taxes will be simple because you report all income and expenses on your personal taxes. Corporate taxes are more complicated and may cost you from hiring a professional tax agency – and even more money if you do it yourself incorrectly. Bad news: If your business is very successful, it will raise you into a much higher income bracket than you would be if your business was a separate entity.


Along with taxes, nobody really wants to think about liability. We all dream of a perfect world where disasters, lawsuits, and bankruptcies don’t exist. But they do, and it is important to consider the possibility of liability costs when organizing your business.

Let’s return to our example of sole proprietorship. Good news: Because your business does not have stock, you are less affected by the instability of stockholders and the stock market. Bad news: If your business takes a huge loss, you are solely responsible. Bankruptcies and bad credit affect your personal financial reputation.

If you are a partner in your small business, there are additional costs if you choose the wrong person to go into business with. It may cost you more upfront to create strong partnership agreement with a lawyer, but it could save you lots of money if your partner doesn’t work out. You might even need to buy your partner out if necessary.

Overhead Expenses

Incorporating your business costs a lot of money. There are four typical fees for incorporating a business: $100-$200 for filing Articles of Incorporation, $800-$1,000 in First Year Franchise Tax for each state you do business in (except Nevada), $50-$200 in various government filings, and $500+ in attorney fees for advising and setting everything up correctly. It is possible to file for incorporation without an attorney, but if you make a mistake you could cost yourself more in the process.

Additional hidden costs of incorporating can include state-level registration, penalties for missing ever-changing state and federal regulations, acquiring U.S. citizenship, and more.

What costs the most? If incorporating is the wrong structure for your small business. All those expensive fees are unnecessary if being a sole proprietor or being in a partnership works just fine. Check out this handy chart that compares business structures. If you think your business should be a separate corporation, talk to your business mentor.


For information about Opportunity Fund’s small business loans, please contact us at 866-299-8173 or  For questions about your existing loan or other customer service questions, please contact us at 866-299-8173 or

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