Confused About Which Legal Entity is Right for You?

Lately, I’ve had a lot of people ask me about the difference between the various legal entities. So, I thought I’d provide a brief overview. The various entities differ in terms of liability protection, ownership rights, tax benefits, ease of management, and exit strategies. There are four entity options.

First, is the Sole Proprietor.

This is anyone who decides to go into business on their own. You get a business license and your doors are open. It’s simple to start and maintain but there’s a lot of liability risk involved.

Second, is the Partnership.

This is where two or more people decide to go into business together. They get a business license and their doors are open. This is like a sole proprietor, it just has multiple people as owners.

Third, is the Limited Liability Company.

This is when one or more persons or other entities decide to start a business. They register with the State, write an Operating Agreement, get a business license, and the doors are open. One benefit to being an LLC is the personal liability protection it offers. So long as you maintain a wall between yourself as an individual and as a business owner, you can add in a layer of liability protection to keep your personal assets protected. There can also be tax benefits to being an LLC.

Fourth, is the Corporation.

There’s the S-Corp and C-Corp which have different tax rules than the other entities. With this, you register with the State, write your Bylaws, get a business license, and the doors are open. There’s regular paperwork that must be maintained as a corporation and you as the shareholder are responsible for making sure the corporate paperwork is done correctly. The corporation also benefits from an extra level of liability protection, so long as all the right boxes are checked. There are usually business or tax motivations for forming a corporation.

There are pros and cons to each of these entities but the right one for you depends on your specific circumstance and goals. If you’d like more information, schedule an appointment to talk with us and you’ll get some answers.