Corporate Law Blog

Choice of entity is important for budding businesses

Choosing a business form with which to organize a growing business is not always an easier matter, especially for those with little experience in business. Selecting a business entity form is important, though, as it can help position a business to increase growth by offering certain protections, particularly in the areas of liability and taxes, as well as trademarks and licenses.

Aside from sole proprietorships, which involve no distinction between the business and the owner for tax and liability purposes, one can organize a business with multiple owners as a general partnership. In a general partnership, each partner can be held personally liable for business liabilities. General Partnerships work well for some businesses, but have to function similarly to marriage. Because of the risk in this arrangement, other business forms are available which limit the partners’ responsibility for business liabilities. 

There are various options for limiting liability. The most versatile business entity is the Limited Liability Company, which combines some of the benefits of more corporate business forms with the tax advantages and liability protections offered by a limited liability partnership.

For small business owners, it is important to carefully consider the business form that is best suited to their enterprise. In some cases, sole proprietorship is really the best way to go for a business owner. In other cases, the circumstances are such that another entity type will allow the business to thrive the best.

Those who are contemplating how to best organize their business should work with an experienced business law attorney to obtain solid advice regarding the choice of entity and to ensure they do everything correctly on the legal end of things. 

Source: Post Independent, “Choice of entity—a few basic considerations,” Matthew Trinidad, July 13, 2014.