July 18, 2024


Association Of Law

Selecting the Right Entity For Your New Business

2 min read
Selecting the Right Entity For Your New Business

In the rush to embark on a new entrepreneurial adventure, people often overlook the importance of taking the time to select the proper entity in which to structure their business. Selecting the proper entity has both tax and non-tax implications that require every business owner to engage in proper planning and consult with tax and legal professionals.

Before ordering inventory, hiring employees or printing up some fancy business cards, every business owner should ponder these issues:

1. How will the business be managed?
2. How will ownership interests be transferred?
3. Does the ownership structure need to maintain flexibility?
4. What happens if an owner dies, retires, or files for bankruptcy?
5. How will owners be compensated?
6. What are the tax consequences to owners who invest capital in the business?
7. To what extent will owners have liability for debts and conduct of the business?
8. How will profits be taxed?
9. What type of benefits will be extended to employees?

One form of entity that has gained significant popularity is the limited liability company-also known as the “LLC”. An LLC is formed by filing a Certificate of Organization with the Department of State and can have as few as one “member” (owner). Some of the key characteristics of an LLC include:

-very flexible structure;

-can be taxed as a partnership

-members of the LLC are not liable for debts and liabilities of the LLC

-less formalities than a corporation

-no annual fee for members

-operating agreement controls the relationship of the members

Whether you select an LLC, a corporation, an LP, or some other business entity is an important consideration that is best dealt with well in advance of the start of your new business. Be sure to meet with an accountant and an attorney, who are experienced in business formation, to review which entity will best help you achieve your business goals.

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