Choosing the Right Business Entity for Your Startup

Law Offices of Peter V Lathouris LLC June 30, 2020

One of the most important decisions you will ever make as a new business owner is choosing a business entity or business structure. Although making this decision may not be as enjoyable as choosing a business name or making decisions about products and services, it is an absolutely crucial aspect of starting a new business. Many new business owners find themselves in deep legal and financial trouble after choosing a business structure that does not fit their ambitions and needs. This is why it is essential to make an educated decision when choosing how to structure your business.

Types of Business Structures

The type of business structure you choose will have a major impact on how the Internal Revenue Service (IRS) taxes your business revenue. Your business structure will also determine your level of personal liability for business losses. The most common types of business structures include:

  • Sole Proprietorship: Sole proprietorships are the easiest and most straightforward types of businesses to start because there is no separation between the business owner and the business entity. If you structure your business as a sole proprietorship, business income is reported on your personal income tax returns. This business structure may be right for you if you are an independent contractor, consultant, or the sole owner of your business.

  • Limited Liability Company (LLC): Limited liability companies have characteristics of a partnership and a corporation. If you do not want to be personally liable for your business’s debts and liabilities, you may want to structure your business as an LLC.

  • Partnership: In a partnership, income generated by the business is divided among more than one owner. The owners report this revenue on their personal tax returns. There are several different types of partnerships available including limited partnerships, limited liability partnerships (LLPs), general partnerships, and limited liability limited partnerships (LLLPs).

  • S Corporation: In order to form an S corporation, you cannot have more than 100 eligible shareholders and must have only one class of stock. The main benefit of this type of business structure is that you gain the benefits of incorporation while still being taxed as a partnership.

  • C Corporation: In a C corporation, business profits are taxed on the business level and at the individual level when the profits are distributed to shareholders. C corporations can have an unlimited number of shareholders and more than one class of stock. Shareholders in a C corporation have limited liability for debts incurred by the business.

Contact a Stamford, CT Business Lawyer

When it comes to choosing the right business entity, it is best not to take any chances. For dependable legal guidance regarding business entity formations, business sales and purchases, contract review/drafting, and more, contact the Law Offices of Peter V. Lathouris, LLC. With proven success for our clients, we have over 30 years of experience handling a variety of cases relating to commercial, business, and real estate law. Call our office today to schedule a free initial consultation with a knowledgeable Greenwich business entity formation attorney.