What business entity is right for me?
Choosing a corporate entity is one of the most important initial decisions you will make for your business. Your entity selection can affect your control and management of the business, funding eligibility, the number of shareholders and partners, taxes, and much more. When forming a new business, you should keep two important things in mind:
- Entities are state specific. When you incorporate or organize, it is done at a state level, and your entity will be subject to the laws of the individual state.
- Your corporate entity selection may not match your tax entity. You can incorporate or organize as a certain entity at the state level, but elect to be taxed by the IRS as a different entity.
Entity selection is complex, and there are numerous factors you must consider. Potential entities available to you include:
- Sole proprietorship: This is a popular entity choice for home-based businesses. It is the simplest entity to form and has the least formalities, but it also provides minimal legal protection. It usually involves one owner who also operates the business.
- Limited liability company (LLC): Probably the most popular business entity today, LLC’s combine the benefits of corporations and partnerships. They offer protection in the event of a personal lawsuit and flexibility in membership. It can, however, be difficult to offer stock options to investors with an LLC.
- Partnerships: Partnerships can be either general or limited. In a general partnership, partners manage the company together and assume equal responsibility for debts. In a limited partnership, limited partners invest, but do not have control over the company. Partnerships can be complex to set up due to the often multiple parties involved and differing roles of some partners.
- Corporations: A corporation is typically used for larger entities, especially when a business will have shareholders or investors. Corporations can shield owners from liability for the debts of the company. This entity allows for ease of funding and has tax benefits, but forming a corporation is an involved process.
For assistance creating your business, contact the South Carolina business organization attorneys at Willcox, Buyck & Williams, P.A.