The Types Of Business Entities: The Pros And Cons

One of the most important decisions when starting a business is to choose which business entity to form. The type of entity carries such financial and legal implications as determining tax liabilities, loan accessibility, who can make decisions and, if sued, what assets the plaintiff may collect.

At the firm of Lawrence R. Jensen & Associates, we help numerous clients choose business entities for new companies. Learn more about the pros and cons of business entities and which one is right for you:

Sole Proprietorship

This is the most simple and affordable entity type. It is easy to set up and does not need to be registered with the state, though permits or licenses may be needed. One-person retailers, freelancers and consultants are often sole proprietorship businesses.

The biggest drawback to sole proprietorships is that the owner holds personal liability regarding debt or lawsuits. Your personal assets could be affected by your business losses. This form of entity is especially risky if you have employees.

Our knowledgeable business lawyers can clarify all of these aspects and advise you on whether this is the right entity choice for you.

Corporations

A corporation is more complex and costlier to operate than most other entities, and it often incurs more taxes than others. However, shareholders can separate company debts from personal assets.

Corporations vary greatly in size, usually depending on the industry. Our attorneys can further explain the pros and cons of corporations and ensure your formation is completed correctly.

Limited Liability Companies (LLCs)

Many small and medium-sized business owners choose to form an LLC. In an LLC, any member can be involved with the business operations, and in most instances, members are protected from personal liability in the company. This entity is also relatively easy to operate.

Despite these benefits, an LLC can affect personal taxes, as members of the LLC are often treated as being self-employed. It can also be difficult to legally sustain this business entity if a member leaves absent careful structuring during formation.

To establish an LLC, you must, among other things, file articles of organization and develop an operation agreement — the latter being one of the most important tasks. A skilled business lawyer can help you properly draft an agreement that will help the business operate smoothly.

LLC Or Corporation? We Can Guide You. Schedule A Consultation.

Our assertive yet friendly legal advocates are ready to assist you. Schedule a discount-rate initial consultation at our San Jose office by calling 408-465-0293 or by sending us an email.

We provide reduced rates for the first hour of meeting with us.