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How Do I Know Which Business Structure to Use for my Startup?

Posted on in Business Structure

IL business lawyerStarting a business is an exciting, if not overwhelming, process. Entrepreneurs eager to make their business dreams a reality must address seemingly countless issues. One of the most crucial questions new business owners will need to answer is how to structure their business. There are several different types of business structures, and each has its own advantages and disadvantages. Fortunately, entrepreneurs do not have to figure all of these legal issues out on their own.

If you want to start a business, contact an experienced business law attorney who can evaluate your short- and long-term goals and help you determine the business entity that will best meet these goals.

Evaluating the Pros and Cons of Each Business Structure

Most people have noticed that companies have letters like "LLC" at the end of their company name, but few give any thought to what these letters mean. However, when you start a business, all of these abbreviations take on a new meaning.

There are four main types of business entities in the United States: sole proprietorship, partnership, limited liability company, and corporation. The type of business you start will determine how your company pays taxes, your personal liability for business debt, the types of licensing you to need, and more.

  • Sole proprietorship – If you are self-employed and take no action to set up another type of business, your business is likely a sole proprietorship by default. This is the most basic type of business structure available. If your company is a sole proprietorship, you are personally liable for business liabilities. Business income is reported on your personal tax return.
  • Limited liability company – An LLC is a popular choice for entrepreneurs starting their first company. Unlike a sole proprietorship, an LLC is a separate legal entity. Members are not personally liable for business obligations. The business has a separate credit score which may make it easier to build credit. Many people believe that an LLC appears more credible than a sole proprietorship to investors and customers. On the downside, there may be industry-specific licensing requirements, annual state filings, and additional paperwork to deal with.
  • Partnership – If you want two or more people to own the company, you may want to structure your company as a partnership. There are two main types of partnerships: limited partnerships (LP) and limited liability partnerships (LLP). Partnerships are popular choices for people who want to go into business with friends or family members.
  • Corporation – Corporations are separate from their owners. Shareholders participate in profits but are not personally liable for business debts. In an S corporation, profits flow through to the owner and are not taxed at the corporate level. C corporations are subject to double taxation. If you eventually want to take your company public and sell to investors, a C corporation may be right for you.

Contact a DuPage County Business Law Attorney

If you are starting a business, contact Stock, Carlson & Asso. LLC for help choosing a business structure and getting started. Call our experienced Wheaton business lawyers at 630-665-2500 for a confidential consultation.

Source:

https://www.sba.gov/business-guide/launch-your-business/choose-business-structure

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