Choosing an entity that is right for you can sometimes seem challenging, but Handelin Law is here to help. Our business law attorneys have broken down the different entity types with a brief overview of each.
What is a Sole Proprietorship?
If you are looking for a simple way to start up a business with no one else involved, a sole proprietorship is most likely the route you would want to take. However, there is no liability protection meaning all assets, debt, and responsibilities of the business are solely the responsibility of the sole proprietor. With this entity, there is no differentiative between business or personal assets. Sole proprietorships are not taxed as a separate entity since the owner is taxed directly.
What is a Partnership?
A partnership generally is two or more people going into business together. While not mandatory, it is highly recommended that every partnership has a partnership agreement to set forth the respective rights of each partner – this is to protect investments, create governing rules, and identify responsibilities. There are default laws that apply to partnerships, but it may not always be in line with the partner’s verbal agreement. Partnerships offer pass-through taxation, so each partner will be taxed based on their income. If you plan on going into business with one or more people, a partnership is an option, but it may be in your best interest to choose a more formal entity option.
What is a Limited Partnership?
Limited partnerships offer liability protection to the limited partners, or the partners not involved in the day to day operations. Liability is limited to those limited partner’s capital contributions. The general partner, which is involved in the management of the company, may be personally liable for the company’s debts. As a partnership, a limited partnership will also want to be governed by a partnership agreement, signed off by all partners, general and limited.
What is an LLC?
A Limited Liability Company, commonly known as an LLC, can be a great choice of an entity if you plan on starting a small business. Owners of an LLC are known as members, while the people in charge of the operations or are called managers. Members are given liability protection in this form of entity in so far as their liability is limited to their contributions and their personal assets are not at risk for company obligations. With liability protection, any assets owned by the business are not at risk if something were to happen, such as being sued individually provided that the lawsuit does not result in a charging order against that member’s interest in the Company. However, with that, the members and managers must properly maintain the company to preserve the corporate veil. An LLC is flexible and can be used for professional endeavors and Nevada allows for a series LLC. LLC’s can also be taxed as a partnership or an S-corp but the election should be made in conjunction with your tax professional.
What is a Corporation?
A Corporation is known as a legal entity that is separate from its officers, directors, and employees. The owners of a corporation are known as shareholders. The corporation (ending in Inc., Co., Corp., Ltd.) shareholders appoint directors and officers who manage the company. When starting a corporation, consider your preferences on how much control over your business you want, this type of set-up ensures that more people have a say in your company rather than just you. It is a more formal and traditional entity that provides limited liability for the shareholders or owners and oftentimes provides indemnifications for shareholders and officers with the respect of the management and operations of the entity. They must also maintain the corporate veil to maintain limited liability for shareholders. Corporations can be taxed as either an S-corp or C-corp but then again should only be done after consultation with your tax advisor. Corporations are stricter in their formalities, so you as all the other entities identified, should consult in an attorney for formation.
What entity is best for me?
After you have read through the different options of entities, we highly recommend you head on over to our blog “How to Choose the Best Entity for You” there, you will find important considerations and tips when choosing your entity type.
How to start and form an entity
Your next step is to start and form your business, which can be made possible by scheduling a consultation with our business attorneys here at Handelin Law. Our attorneys have years of experience and knowledge which is exactly what you need when starting your business. So give us a call today at 775 882 8032 or fill out a consultation request form online.