Business Formations

Understanding The Different Options For Forming A Business

There are multiple ways to organize or register a business, including:

• Sole Proprietorship: A sole proprietorship is a business owned and managed directly by an individual. While the advantages of this option include the simplistic process of formation and minimal regulatory and reporting requirements, a key disadvantage is the owner’s exposure to personal liability for business liabilities and relatively limited options for expansion and obtaining capital.

• General Partnership: Partnerships have two or more co-owners in a for-profit entity and classified as general and limited. Successful partnership formations require transparency and a realistic assessment and description of each party’s stake in the business and responsibilities, which must defined in a comprehensive Partnership Agreement.

• Limited Partnership: These organizations are partnerships with one or more general partners responsible for managing the business and limited partners who, while being co-owners, are not typically involved in the daily operations.

• Limited Liability Company: LLCs are means of ownership that limit the owner’s (called “members”) individual liability. They allow for significant adaptability and flexibility in structuring and managing the business. LLCs are a practical, limited-liability option for many types of business.

• Corporations: Corporations are limited liability legal entities and generally the most complex in formation and operation. Owners (shareholders) choose a board of directors which, in turn, elect officers who oversee the executive management team and those responsible for day-to-day operations. Corporations offer considerable flexibility in tax treatment of the business. S Corporations have a unique tax structure in which the profits of the business are taxed to the shareholders based on their percentage of ownership.