The sole proprietorship requires no formalities, no documents to execute, and no separate bank accounts or tax returns. Many new business owners think about choosing to operate as a sole proprietor because it’s easy to get started. But since there is no separate legal identity from its owner, the sole proprietor will be personally liable for many things that can happen in the business, even if the business no longer exists. Now we’ll look at General Partnership. A General Partnership is an association of two or more persons or entities that conduct a business as co-owners. The partners invest capital and share in the profits and losses of the partnership. The partners are agents for each other, which means that if a partner enters into an agreement, it binds the other partner as well. The partnership is a separate legal entity, but partners can be liable on the partnership level and in some situations, on the individual level. Just as a note, limited partnerships allow one partner to have less liability and responsibility than the other.
A more complex option is a Corporation. Corporations allow the business owner to create a separate legal entity to conduct business. The corporation can raise money for the business by issuing and selling shares of stock that are owned by the corporation. The purchasers of the shares then become shareholders in the corporation but are not personally responsible for the corporation’s liabilities. The corporate form protects the business owner by shielding their personal assets from liability.
Finally, let’s discuss the Limited Liability Company. The LLC blends elements of the corporation and a partnership. LLC’s are very flexible and business owners can spell out virtually all aspects of the company’s management structure in its operating agreement. The profits and losses flow through to the personal tax return of the members of the LLC. Many start-up or small businesses today, choose the LLC because of its flexibility, limitation of liability, and reduced formalities.
There are many types of for profit and non for-profit business entities. The kind of business entity that you choose, and the people you choose to go into business with, are very important decisions to make. For more information on forming your for profit or non-profit business entity, please call The Evans Williams Law Group to schedule a consultation. We look forward to doing business with you.