What Type of Business is my Business?

So you are thinking of starting a business? You may be wondering what kind of business formation would work best for me. Some of the most common business formations are partnerships, sole proprietorships, corporations, and limited liability companies. Three common concerns for business owners when choosing a business formation are complexity, liability, and taxation. No one business formation is perfect but we at Thooft Law are committed to helping you find the best option for you and your business.

Partnerships:

Complexity: Partnerships are very easy to form because there is no filing with the state required to form the entity. However, it will be in your best interest to seek advice of an attorney and form a partnership agreement.

Liability: Partners are jointly and severally liable for the debts of the partnership. This means that each partner will be personally liable for the debts of the company. Depending on nature of your business this may be too great of a risk to take.

Taxation: The business itself will not have to pay taxes as is the case with some other business forms. The owners will obviously still be required to pay their personal taxes.

Sole Proprietorships:

Complexity: A sole proprietorship does not require filing with the state for the company to be established.

Liability: A sole proprietorship leaves the owner personally liable to all claims against the business. For many businesses this is not an advisable business form as it too great a risk for the owner.

Taxation: The business itself will not have to pay taxes as is the case with some other business forms. The owner will obviously still be required to pay their personal taxes.

Corporations:

Complexity: Unlike the previously mentioned forms, Corporations are complex to create. The corporate form requires filing articles of incorporation with the state to create the corporation and the lengthy process of choosing directors, writing bylaws, etc. to be begin operating the corporation. One of the reasons for this complexity is that it helps protect shareholders, which is one of the many reasons it is the preferred business formation of many large companies.

Liability: Shareholders of the corporation are generally protected from liability.

Taxation: Corporations have the unique issue of double taxation which means the corporation will be taxed along with the shareholders.

Limited Liability Companies:

Complexity: This form requires filing articles with the state and paying annual fees to maintain this business formation.

Liability: As is noted by the name, the owners of a limited liability company enjoy limited personal liability.

Taxation: LLCs by default are subject to double taxation but there are ways in which to work around double taxation issue.

Thooft Law is here to help you make this important decision. We are committed to find the correct business form for you and your business. We can be contacted at thooftlaw@gmail.com. We look forward to hearing from you.