Now that you’ve decided to open a business, you have to determine the type of business formation that will best suit your needs and protect your assets. Here is a quick guide to give you a basic understanding of the most common types of business formations.
Sole Proprietorship
This is a type of business structure in which there is one person who owns the business under their name. You only need to register with the state if you are going to do business under a name other than your own.
Since a sole proprietorship technically isn’t a legal entity, it doesn’t offer much in the name of legal protection. Income and expenses in this type of business formation are reported on Schedule C of your personal income tax return. Professionals, consultants, and independent contractors are usually sole proprietorships.
Partnerships
There are two main types of partnerships: general and limited. General partnerships are best for joint business ventures where profits, liability, and managerial responsibilities are shared amongst the partners.
A limited partnership is more common because it protects the partners from the liability of other partners. In this type of business formation, each partner makes an investment and signs a written agreement that communicates the amount of shares, responsibility, and liability each partner will have.
Limited Liability Company (LLC)
This is a special type of business formation that combines the benefits of partnerships and corporations. It offers members protection against personal liability like a corporation does, without corporate taxes.
Naturally, there’s a lot more information required to fully understand the numerous types of business formations out there. To be sure that you have the protection you need to conduct business successfully, contact a business lawyer at 702.451.7077 today.
