Start Your Business the Right Way - Entity Choices

May 20, 2021
business plan paperwork

Starting a business is an exciting time. You pick a name for the business, hone in on your products or services, develop a launch strategy and marketing plan, and so forth. As a lawyer, it is my job to make sure that you do not lose sight of the legal issues during all of the excitement. The very first legal issue that needs to be addressed is your choice of entity. This will help start your business the right way. For if you do not, it is a hassle and can be expensive, to fix later. 


Types of Entities


There are different types of business entities to choose from. The choice will depend on your goals, funding, management structure, and risk assessment.


Sole proprietorship


It is you and only you – you are in complete control and make all decisions. Obviously, the formation of a sole proprietor business is easy to create. There are not too many forms or fees. Besides low cost and simplicity, a sole proprietorship is easy to exit when the time comes. However, unlike other entity types, there is no separation of personal and business assets and liabilities. In other words, you could be on the hook personally if something goes bad.

Partnership


A partnership is a business that is owned by 2 or more people. There are different types of partnerships. A general partnership consists of equal partners. Each partner has the same rights. There is also a limited partnership. In this case, one partner controls the business, but others make financial contributions and share profits. Partners share liabilities like they share profits. I do recommend that a partnership agreement be put in place, so all parties know their responsibilities and expectations. Further, I recommend each party have their own attorney to review and negotiate a partnership agreement. There are some partnership tax advantages and a partnership may make it easier to attract investment into the business.


Limited liability company


A limited liability company, or LLC, allows its owners (members) to limit their personal liabilities while enjoying the tax and flexibility benefits of a partnership. LLC is easy to form, and the associated fees are reasonable. For a small business, LLCs are a popular choice.


Corporation


There are many types of corporations. Far too many to explain here. Regardless, a corporation is a business separate from its owners. A corporation has its own legal rights – it can be sued, sue another party, and sell ownership rights through stock. It is much more expensive and complicated to form a corporation. Different types of corporations have different tax advantages and benefits. I would be happy to answer any questions about the different types of corporations and how they would help you. Generally speaking, owners of corporations are shielded from liability, the business continues regardless of who is in charge, and they are attractive to investors.


So before you launch your company, let's discuss which entity choice makes the most sense. Again, the type of business for you depends on your goals, seed money, risk tolerance, and so forth. 

We are happy to discuss your goals. Click here to schedule your free, no-obligation strategy session with one of our experienced attorneys. During your confidential session, we’ll discuss your unique situation, answer all your questions, and determine the right plan of action for you. Whether or not you retain us, you will have more information to start your business the right way.

Share this post

Share by: