Save this article
Use this article for free on your own website
Republish this article for free on your own website or blog. Or search or browse for more articles that your audience will appreciate. Huge choice available. Ideal for finding quality, free content. Read our publishers guide.
Choosing A Business Entity
The business world is rife with risk. Lawsuits from competitors and customers are, unfortunately, on the rise. To protect yourself and your business, you need to take steps. This means forming a business entity.
The business world is rife with risk. Lawsuits from competitors and customers are, unfortunately, on the rise. To protect yourself and your business, you need to take steps. This means forming a business entity.
In making the decision, it is important that you understand some of the verbiage commonly, and incorrectly, used. You will be told this is all about incorporation, but it really means the choice between a corporation, LLC, and other entities.
As a business owner, you are faced with a wide variety of choices when it comes to business entities. Each has strengths and weaknesses. Some have been around forever such as the corporation while others are new.
Ironically, the most popular form of business entity is not an entity at all. It is the sole proprietorship. It is a dangerous form of business. As the business owner, you are exposed to personal liability for business debts.
The second most popular choice is the partnership. This occurs when two or more people pursue a business venture together. Many people are in partnerships and don’t even know it. As with the sole proprietorship, there is no liability protection in a partnership.
For many businesses, flexibility and taxes are two big issues. They are also positive aspects of a partnership. There are no corporate formalities and taxes flow through to the partners so the entity does not have to pay taxes.
The LLC is a very popular entity, but most people don’t realize it has only existed for the last 30 years or so. The LLC is touted as the wonder business entity because it provides the tax aspect of a partnership and protection of a corporation.
The LLC was touted as a revolutionary new business entity that would make life easy for small businesses. It has the characteristics of it, but the entity is disfavored by many professionals. There are simply too many taxes and fees associated with it.
The corporation is our next subject of discussion. It is the oldest formal business entity. It provides ironclad liability protection when run correctly. This means people that invest in the entity are not personally responsible for its debts.
There are definitely cons to choosing a corporation for your business. It is a formal business and archaic rules must be followed. This often means retaining a business attorney to make sure you are incompliance, a costly requirement.
The opportunities can be a bit overwhelming. If you want flexibility, the LLC would seem to be the best. Want absolute protection from lawsuits? The corporation would seem the answer. The best way to choose is to talk with a CPA and attorney.