Saturday, July 17, 2010

Business Formation -- Choice of Entity

The entrepreneur has a choice of several different choices in which to run a business.

1) Sole proprietorships. On the plus side, these are the least expensive form, but on the minus side, they expose the proprietor with personal liability.

2) Divisions of an existing corporation, LLC, partnership, etc.;

3) general partnerships, that is, two or more people working together. Again, although inexpensive, these face the partners to unlimited personal liability;

4) Limited Liabilty Partnerships;

5) General partnerships in which all of the partners are limited liability

6) Simple limited partnerships—that is, limited partnerships that have
not registered as limited liability limited partnerships (“LLLPs”) and
whose general partners are not limited liability entities;

7) Limited partnership that have registered as LLLPs;

8) Limited partnerships whose general partners are limited liability entities;

9) Corporations;

10) "S" Corporations that allow certain tax benefits to the owners;

11) Limited Liability Companies, or LLCs. This includes Professional Limited Liability Companies, referred to as PLLCs.

The choice of which entity to select to run your business depends on a variety of factors, which coalesce into to basic steps: First, non-tax considerations. That is, what is the most efficient way to run the company and limit the owners' personal liability. Second is the implication of federal income tax and social security taxes on the entity. In nearly all situations involving small to medium sized businesses, the LLC is the preferred entity selection.

An LLC's operating agreement can be tailor drafted to fit the needs of the LLC's members to address nearly any situation. The LLC is by far the most versatile and protective form of business entity.

For more detaile information, contact me or refer to this very informative website: