There are four primary business forms that new business owners can choose from when setting up their business. The importance of business form selection should not be overlooked because of the impact they can have on the operation of the business; for that reason, new business owners should be familiar with the different types of business forms.
Sole proprietorship
A sole proprietorship is a business form designed for single owners of businesses, though they may have other options as well. It provides complete control over the business to the sole proprietor and allows them and the earnings of the business to be taxed on their personal income tax returns. It does not, however, offer personal liability protection for the sole proprietor.
Partnership
A partnership is a business form for two or more partners that is governed by a partnership agreement between he partners. A partnership also does not offer personal liability protection for the partners and allows them and the earnings of the business to be taxed on their personal income tax returns.
Corporation
A corporation is a business form that creates a separate legal entity which is highly regulated. Corporations provide complete personal liability protection for the owners or shareholders of the business but do not provide as much control or flexibility over how the business is managed or run. Corporations are also sometimes referred to as double taxed because the earnings of the business are taxed as well as the income of the owners.
Limited liability company (LLC)
A limited liability company is a business form that provides personal liability protection to the members of the LLC. It also allows for flexibility so that the members can decide how they want to be taxed as a corporation or a partnership.
Business law offers a variety of different tools and resources to help business owners start and manage their business. These legal resources can help guide business owners, who should understand the different business forms available, through the process as they begin their dream of owning their own business.