By: Attorney Shira Truitt
When it comes to business formation and the type of structure your business will take, entrepreneurs have a choice. What you choose will depend on your needs, your experience, and your willingness to do the required record keeping. Each type has its own unique set of legal and financial implications, and it's important for business owners to carefully consider their options before making a decision.
Below is a summary of some of the most common types of business entities and how to form them:
Sole proprietorship: A sole proprietorship is a business owned and operated by a single individual. This is the simplest and easiest type of business to set up, as there are no formal requirements for formation. However, the owner is personally liable for all debts and legal issues of the business.
Partnership: A partnership is a business owned and operated by two or more individuals. Partnerships can be either general partnerships, where all partners share in the management and profits of the business, or limited partnerships, where some partners are passive investors and others are actively involved in the management of the business. To form a partnership, the partners must agree on a partnership agreement outlining their roles and responsibilities and register the business with the state.
Limited liability company (LLC): An LLC is a business structure that combines elements of both partnerships and corporations. LLCs provide the personal liability protection of a corporation, but are taxed as a partnership. To form an LLC, the business owners must file articles of organization with the state and create an operating agreement outlining the management and financial structure of the company.
Corporation: A corporation is a business entity that is separate from its owners and is treated as a legal "person" for tax and liability purposes. Corporations can be either "C" corporations or "S" corporations, each with their own unique tax treatment. To form a corporation, the business owners must file articles of incorporation with the state and adopt bylaws outlining the management and decision-making structure of the company.
In summary, there are several different types of business entities from which entrepreneurs can choose; it's important to carefully consider the options before making a decision.
"Choosing the Right Business Structure." SBA.gov. Accessed March 26, 2021. https://www.sba.gov/starting-business/choose-your-business-structure
"Forming a Business." Nolo.com. Accessed March 26, 2021. https://www.nolo.com/legal-encyclopedia/forming-business.html
"Types of Business Structures." IRS.gov. Accessed March 26, 2021. https://www.irs.gov/businesses/small-businesses-self-employed/types-of-business-structures
If you need legal advice or a lawyer in Illinois or Missouri, please contact The Truitt Law Firm, LLC for assistance. For more information on The Truitt Law Firm, LLC or to schedule an appointment, please go to www.thetruittlawfirm.com.