Business formation is an important step for any new business owner to consider. It is one of the most important decisions a new business owner or entrepreneur setting up a business will make. As a result, they should understand how business law and the different business forms available can help them make the best decision for their company.
There are a variety of different types of business forms for the different needs of business owners. Factors that business owners should consider when selecting the best form for their business include the tax implications; the impact of the business form on control of the business; operating costs; reporting requirements; ending the business and the implications for the business form selected on the same; and the liability implications of the chosen business form.
A sole proprietorship is the simplest business form business owners can select, however, the business owner is liable for all debts and liabilities of the business. A partnership is another business form option to consider that also provides for the business owners to be personally taxed and personally liable for debts and liabilities of the business. A partnership typically has a partnership agreement. Limited liability companies are another option that provides limited personal liability to its members and also generally enjoys pass-through taxation. The final business form to consider is a corporation which can be considered double-taxed because there is corporate and personal tax liability but it also provide personal liability protection. In addition, corporations can be the most costly business form to set up and operate.
Business formation should be carefully considered when an entrepreneur is setting up their business. There are a variety of legal resources to help businesses get set up for success that business owners and entrepreneurs should be familiar with.