There are several different ways to legally create and structure a new business, and it is best to learn a bit about your options before etching anything into stone. The choices you make for your organization at the very beginning of its creation will affect your business path in the future.
It is of the utmost importance that you structure your business to fit the plans you have made for the future of your organization. Here is a brief look at just a few of the specific ways you may set up your new business in the eyes of the law.
C Corporations
A C Corporation setup is better suited for a larger business entity. If your organization has plans to publically trade shares, a C Corporation structure is best with an Initial Public Offering (or IPO).
Because a C Corporation structure allows for a wider base of ownership through shareholders, this business structure is more attractive to potential investors. Most big businesses in the U.S. are C Corporations, check out a bit more information about this common business structure to see if it runs parallel to your vision of the future.
Sole Proprietorship
The easiest and simplest setup for a business is the Sole Proprietorship. A sole proprietorship is not a legal entity, but it refers to the person who owns the organization. When you run a sole proprietorship, you are legally responsible for any debts relating to your business.
You can run your sole proprietorship under a fictitious label (like Pedro’s T-Shirt Shack), or you can choose to operate under your own name. Either way, the legal responsibility falls on the individual.
Limited Liability Company
A Limited Liability Company sets up your business entity to where you are not financially responsible for the organization’s debt, but your business is dissolved upon death or bankruptcy.
Unlike the perpetual nature of a C Corporation, choosing to form an LLC means that you have the right to dissolve your organization at any time without financial penalty.
Partnerships
Forming a partnership takes two or more investors who have agreed to share in the good and bad times of the business. One of the disadvantages of forming a partnership is that there is personal liability for the financial obligations of the organization.
S Corporations
Like an LLC and a C Corporation, an S Corporation offers freedom from liability to owners, shareholders, and employees. The taxation is different. S Corps only have to file once per year, and they are not subject to double charges from the IRS.
The downside of forming an S Corporation is that it is exceptionally expensive. There are also extensive rules and regulations on S Corps regarding record-keeping as well.