A Brief Guide to Your Business Entity Options

When it comes time to officially start your business, one of the first things you need to do is select an entity structure. There are several types of business entities to choose from, each with its own advantages and disadvantages. Your choice can have a significant impact on the way you run your business, from taxes to liability to company control.

The key is finding out which business structure gives you the most benefits to help you achieve your organizational and financial objectives. We have highlighted the most popular business entities below and the factors to take into account when choosing your structure.

1. Sole Proprietorship

The simplest form of business entity is a sole ownership, in which one person is liable for all the profits and debts of a company. I would almost never recommend this type of entity. The reason is lack of limited liability. A sole proprietorship is merely an extension of the person.  Therefore, it doesn’t offer the total separation or security of personal and professional assets. This means that your personal assets are at risk should you incur liability as a sole proprietorship.

2. Partnership

There are two types of partnerships:

  • General partnerships, in which everything is equally shared.
  • Limited partnerships, in which only one partner handles its operation while the other person or people contribute and receive only part of the profit.

A partnership is suitable for anyone who wants to do business with another person. This structure enables business partners to discuss and share profits and losses and to make joint decisions within the company structure. Keep in mind that you are equally responsible for the decisions and actions taken by your partner. Like sole proprietorships, general partners have unlimited personal liability.  Limited partnerships are often used for investment vehicles, where the General Partner manages the asset and the Limited Partners are merely passive investors. Limited partners have limited liability whereas the general partner does not.

3. Limited Liability Company (LLC)

A limited liability company (LLC) is a hybrid structure that enables owners, partners or shareholders to restrict their personal liabilities while taking advantage of the partnership’s tax and flexibility benefits. Under the LLC, owners are guarded from personal liability for the company’s debts, provided that the entity is formed and operated properly and that the members have not acted illegally, unethically, or irresponsibly in the company’s activities.

A limited liability company (LLC) offers businesses more security and separation than sole proprietorship and partnership. In most cases, an LLC separates your personal assets from the company assets. Your profits and losses are also not taxed at corporate level with an LLC.

4. Corporation

A corporation is independent of its owners, and has its own legal rights. The most formal structure of all of the entities, a corporation can sue, prosecute, own and sell property, and sell ownership rights in the form of stocks. Day-to-day decisions are made by corporate officers who report to the Board of Directors, who are elected by the shareholders (owners).  

Seek Legal Help

Selecting your business’s entity is a tough decision. You have to take into account the financial needs, risk, and ability of your startup to grow. After you have registered your business, it can be difficult to change your legal structure, so choosing correctly at the beginning is crucial. Having an attorney available to help you choose which business entity fits you is beneficial. Contact the Greenbaum Law Firm, P.A. to schedule a consultation today.

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Greenbaum Law Firm, P.A.

The Greenbaum Law Firm, P.A. is a boutique, client-centric law firm concentrating in the areas of business and corporate law, contracts and agreements, and real estate. Our unique approach to the practice of law consists of positioning our clients at the center of the legal practice and pursuing their objectives in the most efficient and transparent manner.

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