As you start your list of tasks to complete when starting a new business, it may have the choice of entity structure at the top. The type of entity you choose to operate your business under often sets the stage for how your business will function and could even influence its success.
If you are like other entrepreneurs, you may not realize just how many choices you have when it comes to structuring your entity. Once you know the choices you have, you may want to carefully consider which entity type will best serve your rights and interests as well as those of the company.
What are your entity choices?
Below are the different types of entities you may choose from:
- Sole proprietorship
- Corporation or subchapter S corporation
- Limited liability company or single member limited liability company
- General, limited and limited liability partnership
- Professional corporation
This may seem like a short list, but each entity provides you with different advantages and disadvantages.
How do you decide which entity to choose?
Because of the importance of this decision, you may want to review each entity structure in light of the following factors:
- The level of liability you take on as an individual for the actions of employees and owners, the debt and general liability issues.
- How much will it cost you to set up a particular entity? What is involved in registering the business if state law requires you to register it?
- The amount of control you retain over the company as an owner along with how you receive profits and other monies from the business.
- How do you and the business pay taxes?
After exploring the answers to the above questions and concerns, it may become evident to you which entity structure will work best in your situation, but you may not know where to go from there. On the other hand, your review may only give rise to more questions. In either case, it would benefit you greatly to consult with an attorney experienced in business law and in helping individuals like you with business formation issues such as this.
Choosing an entity structure is only one aspect of forming a business. In order to help you open, and succeed in, the business you have chosen, one other important decision you can make is to develop a relationship with a business law attorney who can guide and assist you well beyond the formation of your business.