Types of Business Entities and How They Affect You

08 Oct Types of Business Entities and How They Affect You

The type of business entity you choose — whether a sole proprietorship, general partnership, limited liability corporation or sole proprietorshipcan affect the legal protection you have between your personal assets as well as business-related lawsuits and debts. It also determines how your business will be taxed and the amount of paperwork you have to complete. Additionally, your business’s decision will affect your ability to obtain a small-business loan and the ease for you to draw investors.

While state authorities recognize https://securedatarooms.net/types-of-business-entities/ more than a dozen types of entities, most small-business owners will be registered as one of six: the sole proprietorship, general partnership, limited liability partnership and limited liability company. S corporation or C corporation. In order to establish your entity structure, you must complete the necessary paperwork with your state agency and pay a nominal fee in the majority of states.

The type of entity you choose is one of the first major decisions you’ll have to make when you’re a new business owner. This decision will have a major impact on your legal and financial exposure, so it is important to consult with a business lawyer and accountant for advice that is tailored to your particular business.

An LLC, for instance is a very popular business entity among self-employed people because it provides the tax and liability advantages of a limited partnership or corporation. It offers flexibility in the way the company is managed and its size, the method of ownership, and the kinds of investors or owners. It also follows pass-through taxation which means that profits are declared as a portion of the members’ gross income and they are accountable to pay taxes on it.