Starting a business is an exciting endeavor, but if you are a first-time entrepreneur, you may have many questions. If so, you are not alone. Many new business owners seek out attorneys who can help them form their company for this reason. Whether you use professional assistance or not, your first legal matter is the same: choosing your business entity.
Business structure can impact everything. From taxes to liability to day-to-day operations, the type of entity you choose matters. As such, having a basic understanding of the four main types of business entities can help you figure out which on might work best for your company and what you want to achieve.
1. Sole proprietorship
When you start doing business activities but you do not formally register as a business, the law automatically considers you a sole proprietor. This is the most common type of business structure, in large part because of how easy it is to set up. However, there is significant personal liability involved.
If there is more than one owner of your company, a partnership may be the best business structure for you. With this type of entity, partnerships can either be limited or limited liability.
3. Limited liability company
With an LLC, you can enjoy the benefits of both corporations and partnerships. While you will still have to pay self-employment taxes, this business structure will protect you from personal liability.
For larger and more established companies, a corporate structure can offer the maximum protection and tax benefits, but it comes at the cost of extensive record-keeping and reporting. With this entity, there are both C corp and S corp options.
At the end of the day, the business structure that is best for your company depends on your individual needs.