If you’re getting ready to launch a new company, congratulations on your new venture. In order to better ensure that your company is structured for the greatest likelihood of success, you’ll need to choose a legal formation option that suits your vision and the needs of your new business.
Each formation option available to new business owners features potential benefits and drawbacks. By carefully considering how each option might impact your business operations, liability risks, etc. you’ll be able to make informed decisions about what your business needs.
Your primary options
There are four broad business structures that are available to business owners who are hoping to operate in any given state in the union:
Sole proprietorships – Owned by a single individual, taxed on their personal return, does not offer personal liability protection, offers maximum flexibility in re: managerial structure and ownership control, easy to launch and virtually no reporting requirements
Partnerships – Operate like sole proprietorships – for the most part – by are owned by more than one individual and/or entity
Limited liability companies (LLCs) – Owned by one or more “members,” can be taxed as distinct entities or on personal returns, offer personal liability protection, offer significant flexibility in re: managerial structure and ownership control, relatively easy to launch and are subject to some reporting requirements
Corporations – Owned by shareholders, taxed as distinct entities, offer maximum personal liability protection, rigid managerial structure and restricted ownership control, can be challenging to launch and are subject to rigorous reporting requirements
Note that some states offer hybrid options, such as some partnership structures that offer some personal liability protection. Some states also offer structures unique to businesses offering professional services, like healthcare and financial advising. By carefully discussing your business goals with an experienced legal professional, you can choose the business structure that is most likely to facilitate your company’s success.