There are many decisions to make when starting up a business. One is which business form to select. Business owners should be familiar with the different options and how to evaluate them to decide which option is best for them and their business. Business law can help them do that.
Business form options
Different business formation options can suit different needs and goals for the business. It is important to be familiar with all of them including:
- Sole proprietorship: a sole proprietorship is the simplest business form. The sole proprietor has complete control over the business but no personal liability protection. The earnings of the business are taxed on the sole proprietor’s personal income tax form.
- Partnership: a partnership is established according to a partnership agreement and has two or more partners. The partners do not enjoy personal liability protection and the earnings of the partnership are taxed on the partners’ personal income tax forms.
- Limited Liability Company (LLC): limited liability companies provide personal liability protection for the members of the LLC. The members of the LLC can also select if they want to be taxed as a partnership or as a corporation.
- Corporation: a corporation also provides complete personal liability protection but is the most regulated business form so it can be more costly to own and operate. Additionally, the earnings of the corporation are separately taxed in addition to the owners or shareholders being taxed.
The decision of what business form to select should be thoughtfully approached and decided on. With the right business form for the particular situation and venture, the business will be in a better position to grow and pursue a successful future.