Charles Bean & Associates > Areas of Expertise > Business Law Services

Business or Entity Formation

At Charles Bean & Associates, we understand the importance of selecting the right business entity. The business formation you choose depends on the situation, and it's not a decision to take lightly.

That's why we're here to offer our expert legal advice.

What to Consider When Selecting A Business Entity

There are several factors to consider, but the main one is your ability to raise capital. Certain entity formations make it tougher as they are subject to strict rules. Others are more flexible with regards to finding revenue streams.

Tax is also an integral factor due to double taxation. With money at a premium, it's wise to avoid unnecessary tax penalties and focus on saving resources to invest back into your business.

Separating ownership and management is another huge consideration as it will leave you personally liable if you don't. Picking a business formation that provides proof of separation, such as different bank accounts and tax codes, is essential to protect yourself from a lawsuit.

Finally, you should factor in ease of entity formation and management. While a corporate structure might be beneficial in many regards, the ability to set up quickly and start trading shouldn't be underestimated. The cost of a business formation is also vital.

What Are the Different Types of Business Entities?

We deal primarily with four prominent types of business formation. They are:

Sole Proprietorship
Partnership
Corporation
Limited Liability Company (LLC)

Below, you'll find the pros and cons of each.

Pros and Cons of Each Business Entity

Sole Proprietorship

The primary benefit of choosing a sole proprietorship is accessibility. You'll be up and running in no time and have complete control over the management aspect of the company.

However, there is no separation between the owner and the business, so it leaves you personally vulnerable to litigation and financial commitments.

Partnership

Double taxation is negated by two people coming together to form a business and sharing the profits. As a pass-through entity, they aren't subject to federal tax and can avoid corporate taxation if the partners add the profits and losses to their return.

As a result of the pass-through loophole, the partners are directly liable.

Corporation

Corporations are legal entities created to conduct business. It's considered separate from the people who formed it, which means it offers protection from debts, lawsuits, and any other financial commitment. Double taxation is also negated if you pick an S Corporation as this entity lets you pass-through your contributions.

Beware, though, that if you opt for a C Corporation, you will be subject to twice the amount of payable tax. Entrepreneurs sometimes find this acceptable because C Corporations are allowed to turn a profit.

Limited Liability Company (LLC)

The most popular business formation, an LLC provides protection from personal liability if set up correctly. It also gives owners the ability to lower their tax contributions by passing-through the amounts to personal returns. In many ways, it's a hybrid of a partnership.

The high formation costs then a partnership can put business owners off forming an LLC, as can the necessary paperwork.