Your Business Entity Type Determines the Success of Your Business
You may choose from several types of business entities when starting a business.
Protecting the business owners from liability is one of the primary considerations when our business attorneys select your business organization. Capitalization, future ownership, management structure, and tax treatment by the federal and state governments are also considerations.
Each State determines how its entities should be set up and how they should conduct business. These laws are specific and dictate the legal responsibility of every type of business entity. Regulatory agencies and taxing authorities also have laws that pertain to how a business is setup. The most common business structures include:
- General Partnership
- Limited Liability Limited Partnership
- Limited Liability Partnership
- Limited Liability Company
- Limited Partnership
- S Corporation
Each of the types of entities are described in more detail below:
A corporation acts as a single person distinct from the shareholders that make up the corporation. The advantages of operating a corporation include centralization of management, limited liability for shareholders, and designation as a separate legal entity.
A general partnership allows all partners to participate fully in running the business and sharing equally in both profits and losses. While it can be easy to form a general partnership (there are no filing fees or filing formalities), all debts and obligations of the general partnership are the responsibility of the partners.
A limited liability limited partnership (LLLP) is a limited partnership that has been registered with the Secretary of State. Registration limits the indirect liability of the general partners similar to how State registration as an LLP limits the liability of the partners of a general partnership.
Most often used by accountants, architects and doctors, limited liability partnership (LLP) allow all partners to take an active role in the management of the business while offering members liability protection from actions of the other partners and the partnership and the partnership employees.
A limited liability company (LLC) is an entity comprised of members with limited liability and is typically managed by either its members or managers. Other than the S-Corporation, LLCs are the most common form of entity formation for entrepreneurs and professional service-based business.
Limited partnerships are partnerships with one or more people who control the business as general partner(s), and one or more persons (limited partners) who contribute capital and share profits but they do not manage the business and are liable only for the amount they contributed to the limited partnership.
The S Corporation is a corporation is taxed under Subchapter S of the Internal Revenue Tax Code. The classification as an S Corporation is for tax purposes. S Corporations are “pass-through” business entities. The profits and losses are reported by the owners on their personal tax returns. Other than the LLC, this is the most likely recommended form of business entity.
At Yamani Law, we understand the challenges of properly setting up a business and maintaining your operating agreements to ensure long-term success of your business. Schedule a consultation today to find out if we are the right fit to work together.