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Which Business Entity to Choose

Are you planning to set-up your own business and you are thinking of which business entity to choose?

We will discuss to you the different types of business entities including the pros and cons so you will have the chance to analyze of which kind best suits to your plan.

Choices in Choosing a Business Entity

Before you put in place your own business, the very first thing you need to do is to learn and understand the options in choosing the best business entity or legal business structure that best suits to your business plan. On this matter it will help you to decide on which structure you will work best. But before we proceed, let us remind you that every state and county have their own distinctions on the rules of each structure so you better give attention on top of it.

There are four legal structures in choosing the right business entity you want to establish. First in the list is the Sole Proprietorship. This is the simplest form of business entity and also known as DBA (Doing Business As). An individual who’s running a business on his/her own without ties to other group is definitely falls under this legal business structure. This also means that the owner is personally liable to all assets and liabilities as well as the gains and losses of the proprietorship. On the other hand, if the business is being run by two or more individuals it is classified as Partnership. According to our sources, Partnership can be defined to three categories which are “General Partnership”, “Limited Partnership”, and Limited Liability Partnership. The most common within the three is the General Partnership where all the partners have the authority to manage the business, which is in contrast to the limited and limited liability partnership where the other partners in business have no management role. Moreover, the third business structure is the Limited Liability Company or LLC wherein they described it as hybrid between a partnership and corporation because it benefits from the advantages of a corporation and maintaining the good qualities of partnership. In addition, the owners of LLC are known as “members” as an alternative for “shareholders”. While the fourth option of a business entity is the Corporation which is described as an association of independent legal persons created under state law and separated from its directors and shareholders.

The Pros and Cons of the Four Business Entities

In choosing the appropriate business entity, you need to consider first the advantages and disadvantages of every legal business structures. In a sole proprietorship you don’t need to create a payroll, it is low cost and the filing of taxes is easier; however, it has no shield from liabilities and it is not easy to get loans. In partnership, it has good tax benefits, easy to establish and to maintain and inexpensive, too; but it has unlimited liabilities. For an LLC, it is easy to file and has limited personal liability except for the member is required to pay self-employment tax. And for a Corporation, it is easy to get funding from investors, with limited personal liability and tax benefits; nevertheless it needs a lot of paperwork and you are taxed as an individual aside from the corporate entity.

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