Understanding what type of business you should form



Part of any business planning is determining the structure of your business. Some structures work better for certain kinds of companies. Some structures work better for people in specific tax situations. All of these things should be considered. Finding a good business planner, attorney and/or tax advisor are important to make this determination. There are various types of business formations. Sole proprietorship, Partnership, LLC, S-Corporation, and C-Corporations are some of the various business types.

* Sole-Proprietorship – this is a single owner company. The owner generally takes on all liabilities and risks for the company. A sole proprietorship is often operated under the name of the owner. Whenever operating a business under a name other than the sole proprietor, an Assumed Name Certificate must be filed with the county clerk. The advantage to this type of business is that the costs to form the business are generally very low. Disadvantages include assuming all liabilities of the company. If the company is sued, you may be personally liable.

* Partnership – this is a company owned by multiple parties. The owners generally take on all liabilities and risk. There are various types of partnerships, which we will not cover in this article. We encourage clients to draw up a partnership agreement outlining ownership structure, percentage of ownership, profit / loss distribution, as well as many other aspects of the business. Depending on the type of partnership, the cost should be low to moderate to form a partnership.

* LLC – is a legal form of business that provides limited liability to its owners. An LLC is governed by each state, and requirements to open this type of business may be slightly different by state. The advantages of an LLC are that the business is a separate entity from the business owner. Therefore, the personal assets of the business owner are more protected than a sole-proprietorship and some forms of a partnership. Also, the cost to start an LLC can be relatively moderate compared to starting a C-Corp or S- Corp.

For help with deciding what works for you, email us at info@albeancompany.com