There are a variety of important implications to choosing a business form for a business that business owners and entrepreneurs should be familiar with. These can include tax consequence of the selection as well as personal liability impacts of the choice that is made, control of the business, cost to operate the business as well as others.
Choosing a business form should not be casually decided and is a selection that should be made with thorough care and thoughtfulness. Business law provides tools and resources to help business owners select the best business form for them and can help guide them and they navigate the process of setting up their business. One of the most common, and well-known, business forms is a sole proprietorship. A sole proprietorship provides the business owner with the most control over their business but does not provide personal liability protection.
Another fairly common business form is a partnership. Partnerships are taxed in the same way as sole proprietorships. Both are taxed on the personal tax returns of the owner and partners rather than as a separate entity. Partnerships are typically governed by a partnership agreement and may provide less control over the business than a sole proprietorship. Corporations are another commonly known business form. Corporations are sometimes referred to as double-taxed because the corporation is taxed in addition to the shareholders being taxed. Corporations can also be costly to run and have to meet more requirements than other business forms. Corporations, however, provide personal liability protection.
A final business form is a limited liability company. Limited liability companies provide personal liability protection and the choice to be taxed as a partnership or a corporation. Each of these considerations should be examined carefully to determine which is the best business form for the business owner and their business and which can help them best achieve the start-up and future successes they envision for their business.