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DETERMINE THE ENTITY
(c) 1999- Joel Johnson
One of the most important things you can do when you start your new business is to decide on the right entity. Will you operate as a Sole-proprietorship, a Corporations, LLC, Partnership? Find out what you need to know to make the right choice.
Structuring you business in a way that protects you from unnecessary liability and taxes is important to your good future. Understanding the different ways in which you can establish your business for these purposes is vital.
When determining the entity you will operate under, consider the liability you will encounter. If you are operating in a home office situation, and the worst thing that could happen is a paper cut, you may not need to operate under any other entity except as a Sole-Proprietorship. However, if you will have employees and a public location, you might want to consider the liability involved. Protection for your family and your personal assets is a major consideration for deciding on the best entity for your particular business.
How will you structure your business?
Sole-Proprietorship - Single or sole proprietorship. Owner is responsible for business liabilities. You are the business.
General Partnership - Two are more people who own various amounts of the beginning assets. All partners are responsible for business liabilities. Profits earned are passed through to the partners.
C-Corporation - Stock ownership by one or more people with limited liability. Usually traded on a national or international stock exchange. Owner liability equal to shares owned and in some cases, any personal guarantees of debt.
S-Corporation - Private company with limited liability. Not listed on stock exchanges. Corporate officers liability limited to the extent of stock ownership and personal guarantees (owners personal guarantees of debt payment are usually required in the beginning.)
PLLC - For professionals, and protects each from each other. Can be taxed as a partnership. Franchise tax applies in some states.
Limited Liability Company - Similar to the S Corporation. Limits liability to extent of investment and personal guarantees, and must comply with the Limited Liability Company Act of the state in which the business operates. LLC are not available in every state. Very few court cases involving LLC's have been tried to date. The strength of this entity, may be questioned in time.
Limited Liability Partnerships - Partners shielded from liability, but covered by required adequate liability insurance in the event of errors and liability claims.
Joint Venture - Two or more companies or joining together as a network to share capitol requirements or expertise in a business venture.
Sole Practitioner - A Sole practitioners is a person who practices an art or profession and is the same for all practical purposes, as a sole proprietorship. Is subject to Federal, State, and local license requirements and laws regulating the practice of his or her profession.
Non-Profit Organization - Charities, churches, community service organizations, governments, etc. must comply with strict government guidelines.
Joint Stock Company - An unincorporated business association of many individuals, each owning shares of stock, which they may sell or transfer at will.
The five most popular of these are:
Limited Liability Companies
How to form your corporation
Please refer to other links on this site for additional information and guidance. You may also contact us with your questions at