Business Formation: What Type of Entity Should Your New Business Be?

Do you want to make your dream of starting your own business a reality? Before you hit the ground running and chasing profit, one important question needs to be answered: What type of business entity will your new business be?


A corporation is a type of business entity that helps to separate both the assets and liability of the business owner from those of the business itself. So, any legal liability or debts the corporation has cannot be extended to you as an individual.

Similarly, taxes are assessed to the corporation only: on the corporation’s profits and on the dividends of stockholders.

Corporations are required to file articles of incorporation with appropriate state agencies, and must hold annual meetings. There is a lot of paperwork involved with starting and running a corporation, so it may not be ideal for small business owners.

Sole Proprietorship

In contrast to corporations, there is no state filing necessary to start a sole proprietorship, with the only requirement being that you are operating a business. You are personally liable for any legal issues your business may run into, and you must file your business’s earnings and losses with your personal tax return.

Two or more sole proprietors may join to form a partnership, which is essentially identical to a sole proprietorship in terms of legal and tax implications involved with running it.

Limited Liability Company

Limited liability companies are sort of a blend of corporations and partnerships. Like corporations, limited liability companies are separated from their owners in terms of legal and financial liability. And like a sole proprietorship or partnership, the owners of the company can report their profits and losses on their personal tax returns.

If you’re about to start forming your own new business and you want to know more about these types of business entities or any others, consider meeting with a business formation lawyer who can help you with any questions you may have. There is no better way to start a new business than with the help of an experienced business attorney.

Garland & Mason, L.L.C. – Business Attorneys


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