The best business form to select for your business depends on a variety of factors. Which business form to select should be evaluated based on those different factors and the needs and goals of the business owner for their business.
Business formation is a big step when starting up a business. Business forms have different consequences for the business concerning personal liability, taxation, control of the business and the costs associated with running the business. A sole proprietorship is the simplest business form a business owner can select, however, it does not provide personal liability protection for the business owner. The business is taxed on the sole proprietor’s personal income tax form and the sole proprietor enjoys complete control over the business.
Similarly, a partnership is also taxed on the personal income tax forms of the partners but control of the partnership is typically governed by a partnership agreement. Partnerships also do not offer personal liability protection for the partners. A corporation, on the other hand, offers complete protection from personal liability but is also more costly to operate. Corporations are also more regulated and provide less control over the business than some of the other business forms. In addition, corporations are oftentimes considered double-taxed because the income of the corporation and the income of the owners are taxed separately.
A limited liability company is a fourth choice a new business owner can considered which provides limited personal liability to the owners who can decide if they want to be taxed as a partnership or a corporation. Starting a business off on the right foot includes selecting the best business form to help the business get started and to grow into its success down the road which makes business law resources and the different business forms important for business owners to familiarize themselves with.