Choosing the right entity for your new business

Choosing the right entity for your new business

In the rush to embark on a new entrepreneurial adventure, people often overlook the importance of taking the time to choose the right entity in which to structure their business. Choosing the right legal entity has both tax and non-tax implications that require every business owner to engage in proper planning and consult with tax and legal professionals.

Before ordering inventory, hiring employees, or printing some fancy business cards, every business owner should consider the following questions:

1. How will the business be managed?
2. How will ownership shares be transferred?
3. Should the ownership structure support flexibility?
4. What happens if the owner dies, retires or declares bankruptcy?
5. How will owners be compensated?
6. What are the tax implications for owners who invest capital in the business?
7. To what extent will the owners be liable for the debts and conduct of the business?
8. How will profits be taxed?
9. What type of benefits will be provided to employees?

One form of entity that has gained considerable popularity is the Limited Liability Company – also known as an “LLC”. An LLC is created by filing a Certificate of Organization with the State Department and can have only one “member” (owner). Some of the key features of an LLC include:

-very flexible structure;

-can be taxed as a partnership

-members of the LLC are not responsible for the debts and obligations of the LLC

-less formalities than a corporation

-no annual membership fee

-the operating agreement controls the relationships of the members

Whether you choose an LLC, corporation, LP, or some other business entity is an important consideration that is best addressed well in advance of starting your new business. Be sure to meet with an accountant and attorney experienced in business formation to review which entity will best help you achieve your business goals.

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