There are many different types of entities for which your desired business may be eligible. When making this decision, you must evaluate the conditions of your desired business. These considerations include the size and cost of the entity; tort and tax liability; regulatory requirements as determined by state government as well as local municipality; and protection of your intellectual property, services, and products as wekk as tax considerations. There are three main types of entities: corporations, limited liability companies (LLCs), and partnerships/sole proprietorships.
Corporations are created under state laws with as separate legal entities with expressed rights and liabilities that are separate from its members. They often consist of a board of directors or shareholders who are responsible for filing annual reports to the state. When creating a corporation, you must file Articles of Incorporation, obtain an Employer ID Number (EIN), designate, create and meet as a Board of Directors and Shareholders.
Limited Liability Companies (LLCs) are often considered advantageous for a small to medium-sized business. Starting out requires filing the proper Articles of Organization with the state, obtaining an EIN and signing an Operating Agreement. As it states in the name, there is limited liability protection for the owners, called members. Advantages of an LLC over a traditional corporation include the no requirement for frequent corporate meetings. As with any business, there are necessary periodic filings with the state in order to keep the LLC status active.
Partnership/Sole Proprietorship occurs when there is one or two people running the entire business. Start-up fees are much lower and there is no annual compliance. All business-related assets become subject to the owner’s personal liabilities and visa versa. Although simpler to establish and operate, this is the least desirable form of business entity if liability is of concern.