Congratulations on taking the first step towards becoming a business owner. After making the all-important commitment in starting a business, you must also simultaneously decide what form you wish for your business to take. In determining what form of business you wish to undertake, there are different factors to take into consideration. Most importantly, determining what type of business structure you choose can affect your personal liability and tax obligations.
Partnerships: A partnership can be as formal or informal as you wish for it to be. In essence, a partnership can be as simple as two or more partners deciding to pool their efforts to make a profit. There can be a written agreement, an oral agreement, or an agreement may even be inferred from the conduct of the partners. One of the biggest advantages of partnerships is that they are very easy to form. There are no formal requirements in a partnership like those that may be associated with the more complex business structures. Partnerships do, however, have their disadvantages. Perhaps the biggest disadvantage of a partnership is the fact that each partner remains personally liable for the actions of the partnership and the partners acting on behalf of the partnership. That leaves a partner vulnerable by putting their own assets in jeopardy.
Corporations: Corporations are the most formal business structure. They require strict adherence to state requirements and require certain formalities be met such as annual meetings. Due to the high filing fees with the state and rigid formalities, corporations may not be as enticing to small business owners. Unlike partnerships, owners in a corporation are not exposed to personal liability save some very limited exceptions. Another advantage of the corporate form is that raising capital can be easier. Corporations have the ability to issue stock through filing the proper paperwork. Additionally, taxation in a corporation can fluctuate and may give the owners the opportunity to avoid double taxation in some circumstances.
Limited Liability Companies: Limited Liability Companies, or LLCs, are somewhat of a hybrid of partnerships and corporations. Today, LLCs are the most popular business form. They require few formalities, like partnerships, and provide tax incentives. However, unlike corporations, LLCs cannot issue stock and may find the process to gather capital difficult.
Still trying to decide which business form is right for you? Thinking perhaps that another business form may be better for your company? Call the Trembly Law Firm at (305) 431-5678 for a consultation now. The legal team at Trembly Law Firm will help you with all the legal documentation necessary in undertaking such a major step.