There are several different business forms that new business owners can choose from when setting up their business. It is helpful to be familiar with what they are and what the differences between the different business forms are.
Different options for business formation
The sole proprietorship is the simplest business form and the simplest business form to set up. A sole proprietorship has only one owner and is also the least expensive business form. A sole proprietorship is taxed on the sole proprietor’s personal income tax form. A sole proprietorship also does not offer any personal liability protection for the business owner. Partnerships have two or more partners and are typically governed by a partnership agreement. Similar to sole proprietorships, partnerships are taxed on the partners’ personal tax forms and do not provide personal liability protection.
On the other end of the spectrum is the option to incorporate. Corporations are considered the most costly business form. In addition, the corporation is also taxed and the owners are as well. This is sometimes referred to as double taxation. Corporations do provide personal liability protection for the owners. The final business form that may be selected is the limited liability company (LLC). Limited liability companies provide personal liability protection and the members of the LLC have the option to decide if they will be taxed as a partnership or corporation.
Business formation is an important step at the outset of any new business. For that reason, it is useful for new business owners to be familiar with their options. Business law can help guide those decisions.