One of the most important decisions you will make as a business owner is the type of legal structure for your company. There are several choices available, and each entity type carries with it varying legal and tax consequences. Business entity choices include:
- Sole Proprietorship
- General Partnership
- Limited Partnership
- Limited Liability Company
- Subchapter S Corporation
- C Corporation
In addition, most states allow for certain categories of professional corporations. Whatever your choice, before you make it, ask these 10 questions to help you determine which business entity will best serve your vision for your company:
- Who will run the company — just you, or will you have partners?
- If others are involved as partners, will they be equal partners?
- Do the others intend to just invest in the company or also help operate it?
- Do you want to protect your personal assets, and those of others in the company, from potential business liabilities?
- Do you wish to avoid a situation known as double taxation, where both the company and the shareholders are taxed on certain income?
- How long do you envision the company lasting — is it a short-term endeavor, a lifelong enterprise, or a business that you want to last beyond your lifetime?
- Do you want to avoid formalities in the startup phase of the business or prefer to start the business as a distinct and separate legal entity?
- Do you always want to maintain operational control of the company, or do you envision a time in the future when you step aside and operate in an advisory role?
- Will the company have an independent Board of Directors comprised of outsiders, insiders, or both?
- Do you always want to maintain a majority equity stake in the company?
When deciding on a business entity, it is critical to consult with legal counsel and a financial advisor who can provide you with the proper guidance regarding the tax and legal consequences of your decision.
Johnson Legal PC specializes in business and corporate law and can assist your organization in achieving its full potential. Contact us to learn more about how a great corporate attorney can help your business thrive.
