Forming Your Business
Deciding which type of Business Entity is right for you can be an extremely confusing procedure. Oftentimes the wrong decision can come back to haunt you down the road. Should we become an LLC? What is an S-Corp? These are questions on every new business owner’s mind. Most states recognize six types of business entities, choosing the right entity can mean a lot to the future success of your business.
At SAPG Legal we strive to keep our clients informed every step of the way while helping them achieve their personal and business goals. Here is a breakdown of the different types of business entity.
Limited Liability Company
A common type of Business Entity for small businesses and startups. An LLC offers protection to the owner, guarding them from personal liability in the event of a lawsuit. Additionally, LLC’s offer a fluid structure, which allows the owners to create complex structures in terms of control and financing. The downside of which is that it is typically more expensive to form.
A Corporation offers many legal protections to both the company and the owners. Business Corporations include several subsections such as a C-Corp and S-Corp. A C-Corporation is for businesses with 100 or more shareholders or or owners, which is taxed both as the Corporation and the individual shareholders. S-Corporations permit shareholders to have “passthrough” taxation, which is only taxed on an individual shareholder basis. Effectively, avoiding the double taxation of a C-Corporation. S-Corporations cannot have more than 100 Shareholders or any complicated structures.
This is NEVER a good option! The owner and business are recognized as the same entity. This opens up a floodgate of problems for the owner. The owner bears full legal liability in the event of a lawsuit. As such all of the owner’s personal assets (home, auto, savings, etc) are at risk.
A partnership is similar to a sole proprietorship, but as the name suggests it includes two or more people. Again, this is not a recommended option for most businesses as like a sole proprietorship it leaves the owners at risk.
This is a form of partnership where the rights and responsibilities are divided equally among the partners. Each partner, or “General Partner”, can act on behalf of all the partners, and each partner is responsible for the partnership’s debts and obligations.
Another form of a partnership, this is where both “General Partners” and “Limited Partners” exist. This allows each partner to determine or limit their personal liability. Unlike general partners, a limited partner is not responsible for the partnership’s actions, debts and obligations. General partners have the right to manage the business, limited partners do not. Both types of partner can benefit from the partnership’s business.