If You Are Lacking the Proper Business Entity You May Be At Risk

Why operate your small business under the proper business entity?  In short, it depends.  It depends on your goals and those of your small business, but don’t worry, when you work with the right business lawyer, all that will be fleshed out with you.  You should note that the best entity for you and your company may be different than the entity recommended to one of your competitors or someone else in your line of work.  Because a different business entity was recommended to you does not mean that you have been recommended the wrong one or someone else has, it just means that you probably have different goals you are trying to meet with your small business.

Too Rough

Of course, there are many variations on each entity, but the six main types of business entities are:

  • Sole Proprietorship – No formal entity here, you are your small business and your business is you.  You should note, however that when you function as a sole proprietor your personal assets may be exposed to your company’s liabilities.
  • General Partnership – A general partnership can exist without any formal agreement.  You form a partnership when two or more people go into business together.  Typically each partner will have have some responsibility for running the company.  Most importantly, you may open up your personal assets to settle the company’s debts even if the debt was not incurred by you.  If you decide to enter into a general partnership, you should be sure to document all the terms in writing.
  • Limited Liability Partnerships – Generally, states reserve this type of entity for use by professionals only, such as accountants, attorneys and architects, so if you are not a professional you will probably end up forming one of the other entities listed.
  • Limited Partnership– This business entity is similar to a general partnership except typically only one general partner exists and the remaining partners are limited partners.  The limited partners have limited involvement in the day-to-day operations of the business and, more importantly, limited liability.
  • Limited Liability Company – A Limited Liability Company (or “LLC”) is available in most states and provides protection from liabilities similar to a corporation.  An LLC is much more flexible than a corporation in that you can structure your business formalities, such as meetings, etc. the way you want to structure them.  If you form this entity, you can elect to be taxed as a corporation or as a partnership or sole proprietor.  There are multiple ways to tailor the structure of an LLC to your liking while enjoying the protections it provides.
  • Corporation – Various forms of corporate entities exist, not all of which will be discussed here.  A corporation is an entity that offers personal protection from your business liabilities, but also is the most document intensive and has the most formalities for the entities listed above.  Your choices may include an S-Corporation or a C-Corporation. The best selection for your needs will depend on several factors that include tax consequences and other cost considerations.

There are several business entities from which to choose.  To determine the best entity for you and your venture you should consult your accountant and your small business attorney for input and direction.  An attorney who knows your business will, undoubtedly, be able to provide the best advice.

If you have questions about the best business entity for you, Integrated General Counsel can help you determine your next steps.  If you are ready for a results-driven plan of action, contact us either by telephone at (925) 399-1529, schedule yourself into our calendar for an appointment at a time convenient for you, or complete the Contact Kristen form and we will get back to you.