Choosing the correct form for your business is one of the most important decisions a business owner can make. You must consider which form best suits your needs with regard to taxes, liability, ease of operation and the ability to raise capital, just to name a few of the issues involved.
Making the right decision involves more than just filling out a form on the internet. The business lawyers at Cannon Law, P.C. can meet with you, listen to what you want to accomplish and help you make the right choice.
Each business form has advantages and disadvantages. Here is some helpful information you can use as you explore your options.
This form of ownership is limited to one individual owner. The business and the individual are treated as one entity.
Advantages of Sole Proprietorship
- Complete control by owner
- Simple to operate
- Income and expenses treated as owner’s income and expenses
Disadvantages of Sole Proprietorship
- No protection from personal liability
- Limited ability to raise capital
- Some business tax benefits not available
A partnership is generally created when two or more people engage in business as co-owners. Partnerships are often either general or limited partnerships. In general partnerships, each partner is liable for the acts and debts of the other partner related to the business. A limited partnership is created when some partners choose to have less control over the partnership and less agility for the acts of the limited partner.
- Less paperwork to maintain than Corporation
- Pass through taxation of profits and losses of partners
- Liability for acts of other partners
- Challenges in raising capital
Corporations are created by filing Articles of Incorporation with the Secretary of State. This process gives birth to a new legal entity that is completely separate from your own individual identity. There are different types of corporations and often a Certified Public Accountant or other tax professional work with our lawyers to be sure that you choose the type of corporation best suited for your situation.
Advantages of Corporations
- Offer the opportunity for protection against personal liability
- Ownership interests can be easily created and transferred
- Easier to raise capital
- Can continue in existence after death of owner(s)
Disadvantages of Corporations
- Must maintain corporate formalities
- Limits on structure of Subchapter S corporations
- C Corporations are subject to double taxation
Limited Liability Company
Limited Liability Companies were created to provide limited liability similar to a corporation while offering more flexibility in organization and structure. An LLC is a separate entity from the individual members but can be used to avoid double taxation without the restrictions of an S Corporation.
- Offers protection from personal liabilityVariety of entities can be members
- Ownership interests easily transferred
- Less paperwork to maintain than corporations
- Pass through taxation available
- Can be subject to self-employment taxes
- Can be more difficult to transfer ownership interests
- Tax accountant help with taxes highly recommended
Contact Bill Cannon for additional information about how we can help you get your business started.