Starting a Business, Should it be a Corporation, Partnership, LLC?

In this crazy economy many people are getting laid off and deciding to follow their dreams and start the business they have always dreamed of.  So what should you be thinking about when starting a business?

One of the first decisions you will need to make once you decide what the business will be is how the business will be run.  A big part of that is whether the business will be a sole proprietorship, a corporation, a partnership, or an LLC.  So what are the pros and cons of these different types of businesses.

Sole proprietorship – This is often a great starting place for small businesses.  With this business form there is one owner who is liable for all debt incurred by the business but also gets the benefit of all the profits.  While this can be a great way to start a business, you need to consider that if the business is sued or something happens, the owner is strictly liable.

Partnership – This business form is for a business with one or more owners.  Like sole proprietorship this form of business also requires that at least one owner is liable for any debts incurred by the corporation.  This partner is called the general partner.  Partnerships can have several limited partners and general partners but there must be at least one general partner.  Limited partners are not liable for the debts of the partnership.

Corporations – This form of business has limited liability for the owners, who are called shareholders.  This means that the shareholders can not be liable for more than their contributions to the corporation.  However, on the negative side, income earned by the corporation is taxed as well as dividends distributed to the shareholders.

LLC – This is a relatively new business form.  LLC allows the business to have limited liability and the business owners can elect whether they want to be taxed as a corporation or a partnership if there are two or more owners or a corporation or disregarded entity (sole proprietorship) if there is one owner.

If you are considering forming a business, it is best to check with your local Small Business Administration, local Chamber of Commerce, or a lawyer for information on properly forming a business.