When going into business for yourself or with a team of like-minded partners, the need for a proper legal structure to contain and cover the project is a matter of course. The type of entity formation you choose will have a major impact on the banking, legal, and governmental taxation aspects of your company. Consider these common forms of business entities:
- Limited Liability Company (LLC): an LLC is technically not a corporation, but it does protect the owner(s) from liability. Usually, businesses with more than two individuals, or a two-person LLC, would commonly be registered as a Limited Liability Partnership (LLP). LLC’s can be formed with a minimum of one member and an unlimited maximum number of members.
- Sole Proprietor: as the name suggests, sole proprietorship is a type of entity used when the company is owned and run by one person. A sole proprietorship won’t can have employees but cannotsell shares, but it will provide an appropriate type of legal structure for a business that resembles self-employment or independent contracting.
- C Corporation: in addition to the small- and medium-sized legal structures reviewed above, there is a corporate formation called the C Corporation. It allows your business to grow larger, with consideration for employees, shares issuance, and various other components such as a board of directors.
- S Corporation: This is similar to a C Corporation, but it allows for a minimum of 1 shareholder to a maximum of 35 shareholders; and it eliminates a level of taxation.