Choosing The Best Company Structure For Your Business

08 Mar 2017
Starting a new business?
First drawing up a business plan is essential and at the top of that list is deciding on who, what, and where? Who are the owners and who will run the business? What kind of business is it? Will there be products to sell or services? And where will the main location be? After all that is decided then you may proceed to choosing what type of entity will you need for the maximum liability and tax advantages.

There are eight total types of entities in business. We will explain all types briefly and give you some of the basic reasons to pick that structure. If you’re not sure, a lawyer could help you in the decision-making and help draw up all the legal documents that may be needed and also to protect your best interest in your new venture. There are for example, agreements, licenses, leases, and nondisclosure agreements for your specific type of business. Also you may need protection with your intellectual property or properties such as your invention, logo or slogan, through patent, trademark, and or copyright registration. Some of the decisions in which entity to choose will also be based on which state you will be operating out of and whether you are doing only local business or if you plan on operating physically outside of that state.

Now let’s review all types of business entities and there basic purposes:

1. Sole Proprietorship

Although the simplest form of business, sole proprietorships are not considered a separate legal entity and do not offer owners limited liability protection. If you intend to do business under a name other than a legal name. You will need to file a DBA aka Doing Business As.

2. Limited Liability Partnership (LLP)

Most often used by licensed professionals such as attorneys and accountants, LLPs afford owners the opportunity to limit their personal liability when an LLC or corporation is not an option.

3. Limited Liability Corporation (LLC)

The most popular way to start a small business, LLCs offer the same personal liability protection as a corporation, but with great tax and management flexibility.

4. Smaller Corporations (C Corp)

Corporations offer personal liability protection, tax savings, and increased opportunities for raising capital. Corporations are also required to perform certain formalities such as holding annual meetings and keeping detailed corporate records (minutes).

5. Larger Corporations (S Corp)

Providing many of the same benefits of a traditional C Corporation, an S Corporation provides both personal liability protections with the added flexibility of pass through taxation, can help address double taxation issues sometimes related to a traditional C Corporation.

6. General Partnership

Not considered a separate legal entity, this association is formed when two or more people start operating a business together. Although easy to form, general partners are personally liable for all business debt and liabilities.

7. Limited Partnership (LP)

Typically used by certain investment groups such as venture capital firms, an LP consists of both general partners who manage and run the LP and limited partners who contribute capital.

8. A Non-Profit (NPO)

A special type of corporation organised to enable the ability to apply for tax exempt status with the IRS and to receive public grants and private donations.

More information can be found at the IRS web site

We always suggest to seek a lawyer so you may have peace of mind in all your legal decisions and having a legal means to keep your business and your personal life in order and running smooth.

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