There are many decisions to make when you open a business. Will you run it yourself or take on a business partner? How will you structure your company to get the most advantages from it?
Keep in mind that while each type of business formation has benefits and drawbacks, typically one will meet your needs more than the others. Let’s examine the differences of some common business entities.
Want to keep it as simple as possible? This might be the way to go. A sole proprietorship could be a good choice for a home-based business with no employees. You will bear responsibility for your business’s debts and reap all of the profits.
But you have no protection from the liabilities that can affect companies. While this could have little impact right now, if your business model is successful, it could adversely impact you in the future.
If two or more people decide to open a company together, they may want to look into a partnership.
General partnerships allow for management responsibilities to be equally shared. Limited partnerships limit the control of the company to just one of the partners, e.g., “silent” partners who pony up the cash and share a portion of the profits.
Limited liability company (LLC)
A popular choice is a limited liability company. As it is a hybrid structure, the company owners, their partners and shareholders can limit their personal liabilities in the event of a problem.
Yet, they still can reap tax benefits and maintain legal flexibility. With no personal debt liability, they are able to take on more risk than a sole proprietorship can. They still must ensure that they do not act irresponsibly, unethically or illegally in any of their business activities.
Corporations are regarded as legally separate entities from their owners, with all the attendant legal rights. As such, corporations can buy and sell property, get sued and sue others, and sell stock.
Within the corporate world, there are subdivisions, including:
- C corps
- S corps
- B corps
- Closed corporations
- Nonprofit corporations
C corporations are owned by shareholders and taxed as separate entities. S corporations don’t face being taxed just as LLCs and partnerships don’t. Their owners enjoy limited liability protection.
B corporations — short for benefit corporations — are considered to be for-profit entities. Their structure allows them to have a positive impact on society.
Closed corporations run by a small number of shareholders also have limited liability protection and are not publicly traded.
Nonprofit corporations are set up to benefit others and are tax exempt.
Cooperatives, also known as co-ops, serve the individuals who own it. The co-op’s offerings benefit the members. These members have a vote as to the company’s mission and is owned by the same people it serves. Its offerings benefit the company’s members, who vote on the organization’s mission and administration.
Make the right decision
If you are new to the business world or otherwise want to make sure that you reap the most potential benefits from your business structure, it’s prudent to seek the counsel of a Florida business law attorney to guide your decision.