How Do You Choose An Entity For Your Business Startup?

The type of entity you form is a big decision when starting a business. It is wise to meet with a business law attorney who can talk about your goals and offer advice unique to you, but here is an overview of some common entities to consider:

Sole Proprietorship

As the name implies, this type of business has one sole owner. It is very easy to start and it offers the financial benefit of deducting any losses from your personal taxes rather than the company’s value.

However, this also means you must deduct profits from your personal taxes. You are also the only person responsible for debts or liabilities that arise.

Limited Liability Company (LLC)

An LLC allows you and your business partners to divide ownership and management responsibilities. This is usually an inexpensive entity to form and, unlike corporations, it does not face double taxation. Another big draw to this business type is that you do not hold personal liability in the company.

Despite its many advantages, an LLC cannot grow through public investment or shares. Its structure may also be too simple for your needs, depending on your vision for the business.

S-Corporation

Corporations are separate entities from their owners for legal purposes. An S-corporation is a type of corporation that passes its profits and losses to shareholders. The ability to sell stocks can also increase company value and diminish your liability in the company.

The biggest drawback to an S-corporation is that your income is directly affected by your share of ownership in the company. It is also a complicated and expensive entity to create.

Ask A Lawyer About Your Startup

At The Law Offices of Jeffrey A. Ellis, PLLC, I have helped many Minnesotan entrepreneurs choose a business entity that fits their needs. For a free 30-minute consultation, contact me online or call 651-319-9334. I am in Rosemount and work with clients in Apple Valley, Eagan and the entire Twin Cities metro.