Best Business Entity for Consulting: Key Considerations

A successful consulting practice starts with the right business structure.

As top business and transaction law attorneys in Seattle, we understand the importance of getting started on the right foot. If you’re unsure which business entity is right for your company, don’t risk making a poor choice. Contact By Design Law online to schedule a free consultation .


It doesn’t matter whether you’re planning a family brunch, remodeling your home or launching a new startup: Without adequate preparation and planning, it will fail.


Every successful project starts with a solid foundation, and without one, any growth you achieve is likely to be unsustainable. And while the stakes are relatively low for personal projects, business endeavors are typically unforgiving of false starts. One of the most critical factors of a strong foundation is selecting the right business entity.


If you’re a relatively green entrepreneur, you may not be aware of the many different business entities and their distinct qualities. However, you need to understand that your selection will have tremendous consequences down the line—especially in a competitive industry like consulting. Fortunately, you don’t need to make the decision on your own.


At By Design Law, we offer customized business solutions to individuals and companies in the Seattle area and beyond. As a burgeoning consulting professional, don’t miss out on the opportunity to gain a competitive advantage from jump street. Keep reading to learn how to choose the best business entity for consulting, including key considerations to your choice.


Ready to start your consulting business the right way? We can help you make it happen. Give us a call at (206) 593-1519 to speak with a talented
business attorney about your legal options.


Why Does My Business Entity Matter?

Every industry has its own set of challenges and corresponding legal considerations, but consulting has more than most. As a business built on providing expert advice, guidance and solutions to clients, consulting typically comes with more legal concerns than other professions.


As a result, consultants must carefully consider how their business structure will impact factors like liability, taxes, management, compliance, growth and more. Understanding the potential advantages and disadvantages of each entity structure, however, can be difficult without legal expertise.


Key Considerations in Selecting Your Business Entity

When it’s time to select a business entity and legally form your company, you may be overwhelmed by the choices. How do you decide between a sole proprietorship, partnership, limited liability company (LLC) or corporation, not to mention the numerous hybrids? The optimal entity structure for you will meet your requirements for the following considerations.


Liability Protection

Most consultants’ primary concern is personal liability, and with good reason. Providing reckless or negligent guidance can easily leave consultants open to a lawsuit, and depending on how their business is structured, the ensuing legal actions could devastate them both professionally and personally.


As a result, consultants should prioritize options that safeguard their personal assets from liability. Two popular options for doing so are LLCs and corporations. LLCs separate personal and business assets, so in the event of a lawsuit, personal finances are generally protected.
C corporations and S corporations offer similar protections, shielding shareholders’ assets from business liabilities. Sole proprietorship is the worst entity choice in terms of personal liability, as the owner/operator is liable for all business obligations and debts.


Tax Implications

It may sound strange, but the business entity you choose will affect how much you pay in taxes. Although there are a number of complexities to consider, one of the most important questions you’ll need to answer is whether you want to use a pass-through entity .


LLCs, partnerships and S corporations are typically considered pass-through entities, meaning they don’t pay taxes at
the entity level profits and losses pass through the individual owners’ tax returns. Conversely, C corporations are subject to double taxation, first on the corporation’s profits then on individual dividends.


For most consultants who are just starting out, incurring double taxation is untenable, meaning C corporations aren’t generally a good choice. However, it is important to note that they can offer various tax deductions that pass-through-entities do not.


Ownership & Management Flexibility

Perhaps the most basic question you need to answer when selecting your business entity is who you want to own and manage it. Whereas sole proprietorships and partnerships offer complete control and decision-making authority to the owner(s), they provide little liability protection. That’s why many consulting firms opt for an LLC, which allows for both flexible ownership structure and shields individuals from personal liability.


Consultants who are looking to involve multiple shareholders or raise capital through stock offerings may benefit from forming a corporation. Corporations require a more structured ownership and management system whereby shareholders own the corporation but directors and officers oversee strategy and management.


Other Important Considerations

Liability protection, tax implications and ownership and management flexibility are just a few of many factors that you need to consider when selecting a business entity. Other variables include the following:


  • Funding and growth potential . What are your long-term goals for funding? Certain business structures are better suited for attracting investors and securing financing than others.


  • Administrative requirements & compliance . Each business entity comes with its own compliance obligations and administrative requirements. It’s essential to consider the time, resources and willingness to fulfill these responsibilities when assessing potential entities.


  • Professional regulations & licensing requirements . Many consultants specialize in highly regulated industries that require specific professionals licenses. Some states, including Washington, allow consultants to form professional limited liability companies (PLLCs) or professional corporations (PCs) in order to maintain liability protection while adhering to specific licensing requirements.


  • Future exit strategy . How do you want to leave your consulting business in the future? Are you hoping to sell it, or do you plan on transferring ownership? The entity you choose should align with the vision you have for your company’s future.


As you can see, the question of entity isn’t a small one and shouldn’t be made lightly. There are numerous angles and considerations that should be taken into account if you want to choose the most advantageous structure for your goals. That’s why most consultants benefit from bringing in legal and tax professionals to assist in selecting the right entity.


By Design Law: Leading Business Attorneys Specializing in Formation Advisement

At the end of the day, there is no one-size-fits-all entity for consulting businesses. The best entity for you is highly dependent on your unique goals, resources, financial situation and preferences. Taking a full-spectrum approach to your decision can be overwhelming, but don’t worry—By Design Law is here to help. Get started by filling out our online intake form to schedule an initial consultation.


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