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What type of business entity is right for you?

There are a number of options to choose from when forming a business entity. Your business entity will serve as your foundation and determine the structure of what you can build in the future. Your choice will either limit you, if you choose incorrectly, or empower you, if you choose wisely.


Types of legal entities

  • Corporation: Unlike the other legal entities discussed below, a corporation exists apart from its owners. This protects the founders from liability, meaning the corporation and shareholders are responsible for taxes instead of the founders. Best case scenario, stocks and bonds (shares in the corporation) will extend the life of the company beyond the life of the owners.
  • Limited liability corporation: Also known as an LLC, a limited liability corporation is similar to a corporation but taxed a little differently. A domestic LLC can have as few as one or two managers.
  • Limited partnership: In a limited partnership, some partners receive only limited liability. There are also different levels of partners. A business can have one (or more) controlling partners and one (or more) limited partners, whose liability is equivalent to their participation in the business.
  • General partnership: In this scenario, multiple people are engaged in business for profit. Taxes are withdrawn from each individual’s personal income.
  • Limited liability partnership: This form of partnership is one that engages in a specific field—such as public accountancy, law, architecture, engineering or land surveying—or provides services for the same.
  • Sole proprietorship: This business entity is one that allows a single individual to own and operate a business with complete control. They are responsible for all liability and taxes, and they receive all revenue.

Due to the tax and liability considerations involved, it’s best to consult with both a tax professional and a lawyer before filing documentation. Other factors impacted by your choice of entity include director and ownership terms, state and federal obligations and personnel possibilities.

Make the right choice now and reap the rewards later.