As a business owner, choosing the entity structure for your new venture is one of the most important decisions you will ever make. There are both tax and legal consequences to each different entity type, and examining the pros and cons of each before making a final decision is a smart move.
If you are running your new company alone, you may be looking at operating as a sole proprietorship, at least during the start-up phase. If you have one or two people working with you, you may also be considering a limited liability company (LLC) structure. Here are some of the most important pros and cons of each:
Sole Proprietorship
Pros:
- Easiest way to launch a new business
- Minimal paperwork involved
- Business income passes to the owner and is reported on his or her individual federal return
Cons:
- No protection for personal assets from business liabilities
- No protection from creditors
LLC
Pros:
- Personal liability protection from legal judgments and company debts
- Business income passes to the owner and is reported on his or her individual federal return
- Easier to capitalize business by adding partners or selling percentage interest
Cons:
- Need to maintain formal records to protect limited liability status
While you can always switch from a sole proprietorship to an LLC, it is better to launch your new venture with an entity structure that will support your future goals and objectives. Consulting with an experienced business attorney who can help you identify potential pitfalls and structure your business to avoid them is well worth the investment for the long-term.
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.
