What is the best business structure for consultants in 2023?

7 min read
Alex Neri

Selecting the best business structure for consultants (namely, you) is important as your company’s structure. It will affect how much you need in capital to begin your business. Besides that, the amount of documentation you will need to completely register your company and the taxes you are liable for will vary accordingly.

Consulting has always been a very lucrative, albeit risky, business. On one hand, you can be really good at your job and give great consulting services making your clients successful. On the other, you risk legal and financial consequences when your consulting advice leads your clients to failure. Planning ahead and selecting the right business structure will give you a layer of protection for you and your employees. This is a key factor in figuring out the best business structure for consultants.

But fear not! At GoDaddy, we always strive to make it simple for our customers! We’ve scoured the web for the information you need and distilled it for you. We have also grouped and marked these types according to:

  1. Complexity of registration processes
  2. Liability of its owner
  3. Amount of taxes to consider

Related: How to start a service business on a tight budget. We have some guides for setting up your business! Learn more

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Common business structures

In Southeast Asia, there are common company types that you can register your business with:

Note: Acronyms - SG: Singapore, MY: Malaysia, ID: Indonesia, HK: Hong Kong, and PH: Philippines. Clicking on the country links will redirect you to related sites for more information. At the end of each list, there is a TL;DR (too long, didn’t read) summary.

1) Sole Proprietorship

best business structure for consultants

Related information: SG, MY, ID, HK, PH

Sole proprietorships are one of the easiest structures to register with. In this case, the business is registered under its owner. Therefore, sole proprietors only needs to file their tax returns once. Taxation only occurs once for these businesses, which means more money can come in as revenue.

However, a sole proprietorship is also one of the riskiest ones to work with. It can be troublesome to maintain, since you (the owner) and the business are one and the same. Any liability - be it be legal, financial, or contractual of the business, will also be your personal liability. For instance, if you gave advice as a consultant which caused a company flounder and fail, you can be liable to a lawsuit. In another scenario, if your business goes down and cannot support its employees, you cannot simply file for bankruptcy. It will not be a simple task since you might have to sell your assets to be able to pay for your financial obligations.

TL;DR: Sole proprietorships are easy to set up, enjoy low taxes, and are not complicated to use. However, using sole proprietorships as your business structure can open yourself up to a lot of risks, especially if you are a consulting company. For a quick and easy setup, this might be the best business structure for consultants.

2) Partnerships

Related information: SG, MY, ID, HK, PH

A partnerships is considered middle ground between sole proprietorship and corporation. Compared to a corporation, partnerships are less complicated to set up, require less startup capital, and enjoy lower tax rates. Partners pay taxes on an individual level and receive revenue divided equally amongst partners. In some instances, partners receive revenue divided according to the capital they invested into the business. If your consultancy business is registered as a full partnership, your partners are exposed to legal and financial liabilities. In cases of limited liability partnerships, liabilities are limited to the extent or amount that the partner has invested into the business. 

Three hands with puzzle piece forming the word partnership

Partnerships also are able to secure more capital with bigger loans, as banks usually take more risks with partnerships than with sole proprietorships. Also, investors favor partnerships more than sole proprietorships when it comes to investing and in raising capital, which makes it easy for expansion.

TL;DR: Partnerships enjoy both advantages of being taxed lower like sole proprietorships and the benefits of bigger loans and better investment opportunities. However, they also bear the risk of putting their owners exposed to liability. This can be the best business structure for consultants as this enjoys the best of both (sole proprietorship and corporation) worlds.

3) Corporations

Related information: SG, MY, ID, HK, PH

Corporations are large, incorporated entities that are legally separate and require the most capital to start. Examples include Private Limited Companies (PLCs for SG/MY), Limited Companies (PTs for Indonesia), Private Limited Liability Company (PLLC for Hong Kong), or Stock Corporations (Corp for Philippines).

Setting up a corporation usually requires a lot of work. You need to file numerous documents such as articles of incorporation, necessary legal documents, licenses, and fees. Also, corporations pay higher taxes compared to sole proprietorships or partnerships. At times, income gets “double-taxed”. Client payments are taxed at a corporate level, and then taxed through withholding tax deductions when they pay you at an employee level. This makes maintaining a corporation very expensive. As a result, you might need to charge your clients at a higher rate than your usual consulting fee. There might be stringent regulatory requirements that are expensive or complicated to maintain, depending on your industry.

However, there are many advantages to registering as a corporation. For starters, corporations face legal and financial liabilities limited at the corporate level. Corporations also enjoy larger and more flexible loans from banks, as banks are more willing to take risks with corporations. Corporations also have the option to raise funds through an Initial Public Offer (IPO) and listing their company on stock exchanges. This can come in handy for expansion plans, allowing the corporation to scale.

TL;DR: Corporations are expensive and hard to set up. However, since it offers protection to their owners and more avenues to raise funds, it is a strong contender in being the best business structure for consultants.

The Takeaway

There is no “all in one solution” in deciding which business structure you need for your consulting business. You need to weigh the pros and cons of each option to decide which one would suit your needs. Ask yourself these questions:

  • Am I offering this service myself, or do I plan on taking in outside help?
    • Will this help be temporary or permanent?
  • Am I willing to take more risks or responsibilities as a consultant?
  • How much money do I have and how much money am I willing to invest into building this business?
  • How fast do I need to have this business up and running?

With that in mind, the points to consider in a nutshell:

  • Sole proprietorships are quick and easy to build, but expose you to the most personal risk and are taxed mostly at a personal level.
  • Partnerships are a level higher than sole proprietorships since they are formed as a “partnership” between individuals who wish to do business together. A partner has their liabilities exposed and taxes collected on a personal level. Liability is either limited or unlimited, depending on the amount of initial investment.
  • Corporations are more challenging to set up as they require the most documentation, higher fees, and are taxed at a higher rate. By law, a corporation is a separate entity. Hence, you enjoy better protection against legal and financial liabilities. This is perfect for firms willing to take more risks in their consulting business.

Hope this article has helped you to determine the most suitable business structure for your consultancy business. The best structure should help your business to thrive quickly, opens up opportunities, and protect your and your assets. 

Good luck!