Of all the choices you make when starting a business, one of the most important is the type of legal organization you select for your company. This decision can affect how much you pay in taxes, the amount of paperwork your business is required to do, the personal liability you face and your ability to borrow money. Business formation is controlled by the law of the state where your business is organized.
The most common forms of businesses are:
- Sole Proprietorships (unincorporated business, highest risk of personal liability)
- Partnerships (LP & RLLP)
- Corporations (Inc., Corp., & Ltd.)
- Limited Liability Company (LLC)
- Not-For-Profit Corporations (NFP)
While state law controls the formation of your business, federal tax law controls how your business is taxed. For example federal tax law recognizes an additional business form, the Subchapter S-Corporation.
One form is not necessarily better than any other. Each business owner must assess his or her own needs. We strongly suggest that all clients seek professional advice from an attorney or accountant prior to determining the business structure for their company.
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