Choosing the correct legal formation for a new business is crucial. This choice will have major legal and financial implications for the future. It will determine not only the amount of taxes owed, but also whether or not the business qualifies for certain types of funding.
There are 15 common types of business formations, each with its own purpose and structure. An experienced business attorney can discuss a new business set-up and plan with an owner to determine the most beneficial type of legal formation. A single owner or married owners, unincorporated business is known as a sole proprietorship. It does not require registration with a Secretary of State, and it comingles personal and business assets.
Partnerships may be registered as general with two or more owners, limited with both active, general and passive limited partners, limited liability which shields all partners from personal liability or limited liability limited partnership which offers some liability protection for general partners only. A limited liability company or LLC offers limited liability for all members. A professional limited liability company or PLLC is also an LLC structure, but for professionals such as physicians or accountants. Corporations may be registered as C-Corp, S-Corp, Professional or B-Corp, each with its own distinguishing characteristics.
Other formations include non-profits, estates, municipalities and cooperatives. With such a wide array of options to choose from, a business owner would be well advised to obtain some expert advice on the best choice to make. Doing so could prevent future financial and tax issues. New businesses should be set for success from day one.