Everett, WA Business Law Attorneys
Which Business Entity is Right for You?
There are so many considerations when starting a new business. One of those considerations is choosing the type of business entity that would best serve your needs. The legal structure of the entity you choose has significant ramifications in three major arenas: taxation, liability, and management.
There are a variety of business entity structures to choose from, but the most common include: sole proprietorship, general partnership, limited liability company and corporation. Below is a thumbnail sketch of the four most common business entity choices relating to taxation, liability and management.
Sole Proprietorship: This is an individually owned and operated business for profit. Income is taxed through the owner's individual tax return. Personal liability is unlimited and management is solely and exclusively in the owner's hands.
General partnership: This is a business of at least two persons as co-owners for profit. Taxation occurs at a personal level according to a partner's ownership interest. There is unlimited personal liability, and management is shared as are profits and losses.
Limited liability company: This business entity shares characteristics of both a corporation and a partnership. On the taxation level, members can opt in for either personal taxation similar to that of a partnership of that of taxation for a corporation. Personal liability is limited to any wrong- doing a member may personally commit and, sometimes, only up to the amount of their personal investment. Management can either be member-managed (co-owner) or manager-managed (outside person).
Corporation: This business entity is usually privately or closely held. Larger corporations are publicly traded on the stock market. The corporation is taxed separately as are the dividends that shareholders receive (unless a Subchapter S election is made). Liability is generally limited to the individual torts of the shareholder. Management is generally through its shareholders in the corporation in the form of directors or officers.
To determine which business entity best suits your needs, consult an experienced business attorney.
