Deciding on a type of business entity for your new business can be a complex legal challenge. Things to consider before making a decision include:
- The new company’s financial needs
- Risks you are willing to take
- The ability for the business to grow
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Sole Proprietorship
According to the University of Richmond, sole proprietorships can have various advantages over other types of business entities. Sole proprietorships are not government-regulated and are easy to form. Proprietors tend to do business under their own names and retain full control over their businesses and profits. However, one major disadvantage sole proprietors have to consider is that they can be personally held to account for any losses and liabilities.S-Corporation
S-Corporations can be set up by an individual business owner and do not require other shareholders or owners. Other important considerations regarding S-Corporations include:- The legal and tax structure of the S-Corp is separate from the business owner(s)
- S-Corporations have a limit on the number of shareholders
- Personal assets of the owner(s) are held separate from any business debts
- Business owners report their business’ profits and losses on their personal tax returns
- S-Corps have to hold annual meetings and keep meeting minutes
Limited Liability Company – LLC
Limited liability companies (LLCs) are a particularly versatile and popular type of business entity. Advantages of LLCs can include that, unlike a corporation, an LLC does not have to hold annual meetings or keep records of meeting minutes. There is generally no limit on the number of owners that an LLC can have. An LLC is taxed depending on whether there is one owner with tax implications similar to a sole proprietorship, or several owners when an LLC will be taxed similar to a partnership.C-Corporations
C-Corporation is an entity where the owners are taxed entirely separately from the business. C-corporations have to pay corporate income taxes. This typically results in double taxation since the business is taxed at the corporate as well as at the personal level. A C-corporation must hold annual meetings and keep minutes of those meetings.Partnership
A partnership is a formal arrangement by two or several parties to operate and manage a company and share any profits from the business. There can be several ways to set up a partnership, including by forming an LLC. In a partnership business, all partners will typically share profits and liabilities equally. However, partners may also have limited liability. Some businesses have so-called “silent partners” that are not involved in the everyday running of the company. Choosing the wrong type of business entity for your start-up may necessitate restructuring your business at considerable effort and expense later. Contact Battaglia, Ross, Dicus & McQuaid, P.A. to help you choose a business entity that can lay the foundations for a thriving business for many years to come.Factors to Consider Before Deciding on a Business Entity
Some important consideration every new business owner should get clear on before deciding on a business entity include:Control
A corporation typically entails having a board of directors making decisions for the company. If you intend to retain complete control of your business, you might want to consider a sole proprietorship or setting up an LLC.Flexibility
Does the type of business entity you are considering give your business enough room to grow or could it hold you back from reaching your goals and aspirations?Liability
If personal liability is a major concern, you may want to set up your business in a way that creates an own entity, such as a corporation or LLC. These entities prevent creditors from accessing the personal assets of business owners.Complexity
Depending on the nature and intended scope of your business, particularly if you do not need any outside funding, you may want to keep it simple. A sole proprietorship is the easiest of all business entities allowing individuals to do business without any major formalities. LLCs and corporations, on the other hand, have to adhere to state and federal reporting requirements.Our Experienced Attorneys Can Protect Your New Business
If you are in the start-up phase of your business, or even if you are further along, our legal team can help answer your questions and ensure your legal rights remain protected. Some of the ways in which our dedicated and experienced attorneys can guide you and protect your business include but are not limited to:- Providing you with direction on the steps needed to start a business
- Advising you on the best type of business entity and structure for your business
- Helping you with the formation of a new business or the restructuring of an established business
- Protecting your assets
- Drafting shareholder, member, and partnership agreements
- Drafting operating agreements
- Guiding you with contracts and financing
- Drafting non-disclosure and non-competition agreements
- Dealing with insurance issues
