When launching a new business, business owners need to select the most appropriate entity type and, in so doing, must digest and analyze many relevant factors and options. Owners who mainly operate on their own may elect to operate as a sole proprietorship. Alternatively, owners who want to shield personal assets from liability and issue shares, among other things, may form a corporation. Each business is different, and considerations include, but are not limited to:
Below is a brief breakdown of several entity options, along with relevant characteristics.
An individual operates a sole proprietorship when they conduct business on their own and do not undertake any formal business formation. For example, an individual offering tutoring services is a sole proprietor. Some characteristics of sole proprietorships include:
A partnership is like a sole proprietorship, but partnership entity formation requires at least two business owners. Much like a sole proprietorship, a partnership’s business owners are not required to file the partnership with the state, and investing partners report earnings, profits (or losses) on personal tax returns. The three types of partnerships are: (1) General Partnership; (2) Limited Partnership; and (3) Limited Liability Partnership.
An LLC is often considered a hybrid of the corporation and the limited partnership. Some key characteristics of an LLC include:
Corporations are the most complex business entity type and require the most legal formalities. Key characteristics of corporations include:
Kirker│Davis LLP provides legal assistance to potential or established business owners who: