By Dr. Chris Downs

Note: If you opened and operated a successful business in the past, or already know business organization strategies, you probably don’t need to read this blog. If business structures are new to you, please read on.

I knew very little about how successful consultants organized their companies when I thought about opening my own consulting practice in 2008. Many of the solo consultants I’d hired over the years were sole proprietors, some were LLCs, some were multi-partner LLPs, and a few were incorporated. Still, I had no clue how I should set up my own company.

I devoured several business and legal textbooks on the subject and reached out to a local business attorney. Ultimately, I opened my company as a Member-Owned Limited Liability Company (LLC) in the State of Washington.

How you organize your company is one of the biggest business decisions you’ll make as a consultant. Your company’s structure could impact the reports you are required to make, your tax filings, degree of legal exposure and risk to both your company and your personal possessions, type and amount of business insurance you can get, and degree of autonomy over your own company.

I think it’s essential that you:

(a) are familiar with the basic types of business models solo consultants use and

(b) do your research on what will work best for you, in your field, and for your circumstances.

I am not a business attorney. If you have questions about business structure, I urge you to seek the guidance of a professional business attorney and/or Certified Public Accountant (CPA). The Small Business Administration may also be helpful.

Independent consultants usually consider four possible business structures:

1. Sole Proprietorship (SP). This is the easiest, with few (if any) reporting requirements, easier tax filing, and seems to be the structure many solo consultants prefer.

2. Limited Liability Company (LLC). These are more complex than an SP. The LLC approach requires state and other jurisdiction registration and reporting. In general, an LLC requires diligent and faithful separation of business activities, revenues, and bank accounts from one’s personal revenues. I’ve not found this requirement to be difficult at all. That may not be the case for you.

3. C Corporation. This is often a large, incorporated company with employees and stock shareholders. The C Corp has a Board of Directors to guide the company. Few solo consultants consider this business structure.

4. S Corporation. With an S Corp, you must incorporate with your state, appoint a board of directors, and distribute stock to appointed owners. Some consultants prefer this structure as it seems to offer the greatest protection for your personal assets in case your company is sued.

It’s vital that you select the business structure that fits you. If you have questions, do your homework, meet with local professionals who can guide you, and/or get advice from a business attorney. I found some of my state’s business offices to be helpful in offering guidance on my original company formation.

If you are considering opening a business practice, have you thought through your options? Have you made your selection?

If you already opened your consulting practice, how did you form your business? Has this structure worked well for you? If not, why?

In “Solo Consulting: Insider Tips for Success!” I go into more depth on the various business models available to solo consultants. Please order your copy today!

Notice: This blog wholly reflects the views and suggestions of Dr. Chris Downs. Readers’ use of his views or suggestions are wholly the responsibility of the reader as reflected by their actions, reactions thoughts, statements, and behaviors. Dr. Downs accepts no responsibility for readers’ use of his words. Further, this blog contains no intentional or structured therapeutic intent nor is the content designed to harm or improve the psychological state of the reader. Readers are responsible for their own reactions to and/or use of any and all suggestions or advice.