Legal Forms of Business

Choosing the Right Business Entity

Business entities are the first step in protecting your company from various legal liabilities. An entity refers to the legal structure of your business. Thus, the entity type determines the legal arrangement between you and the law. In addition, the legal form chosen determines tax liability and other legal aspects of your business.  

Considerations When Choosing a Business Entity

A company has several choices for legal entities.  Companies sell different products.  The legal format selected is determined by the products offered.  Hence, the product determines the entity.  Income determines entity.  Therefore, finances play a role in determining an entity.

Our company is a consulting firm. Thus, our products directed our choice of entity. Thus, we chose a C-Corporation.

Company growth can force a company to adapt. So, change determines entity. Moreover, each business entity has its advantages. Here is a list of five familiar business entities:

• Sole Proprietorship
• Subchapter S Corporation
• Limited Liability Corporation (LLC)
• C-Corporation
• Non-Profit

The Term Incorporated Defined

Let’s define the term incorporated.  It means that you are removing yourself from personal ownership.  Likewise, the process gives a company a legal identity.  While incorporated, all business transactions flow to the company.

Simplest of the Business Entities

A Sole-Proprietorship is the simplest business entity.  Furthermore, proprietorship means single ownership.  Income generated by a Sole-Proprietorship flows directly to the owner.  Think of a Sole-Proprietorship as a second job.  Earnings go to the owner.  Also, a Sole-Proprietorship is accessible.  Therefore, it does not require an attorney to create.  However, it is prudent to seek an accountant’s advice.

Subchapter S-Corporation

A Subchapter S is a type of corporation. The Internal Revenue Service defines its rules.  Also, income goes to the owner. An accountant determines if a Subchapter S-Corporation is the right choice for your firm.

Limited Liability Corporation (LLC)

A Limited Liability Corporation protects the owner from personal liability. The company files bankruptcy instead of the owner. With an LLC, the owner escapes personal liability. Thus, the LLC protects the owner from personal bankruptcy. Company assets settle obligations. Is an LLC right for your business? Enlist the advice of an accountant or tax attorney.

Most Powerful of the Business Entities

A C-Corporation is the most flexible of the business entities.  Also, the C-Corp offers personal protection to the owner.  The C-Corp is taxed separately from the owner.  Thus, the C-Corp provides the owner with tax advantages.  A C-Corp is complex. It can be hard to determine if a C-Corp is a correct option. Subsequently, enlist the advice of a Certified Public Accountant.

Business Entities and the Non-Profit

A non-profit is a corporation. Its purpose is to support a designated social objective. It’s not designed to make a profit.  Income earned by a non-profit is spent on a selected social concern. Structuring a non-profit can be difficult. Therefore, seek the advice of an accountant.

Why Choosing a Business Entity is Important

Choosing a business entity is about protection.  Accordingly, the goal is to protect yourself from personal liability.

Want to learn more about business entities? Disability Associates offers a business tool to answer your questions. It’s called the Business Resource Center. This tool is part of our Disability Advocate Training Program. This module is also sold separately.