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LEGAL NOTIONS Business Law: Business Entity Selection One of the most important decisions to make when starting a business is which type of business entity to use. Types of business entities include: (1) the sole proprietorship; (2) the general partnership; (3) the limited partnership; (4) the limited liability partnership; (5) the limited liability company; (6) the C corporation; (7) the S corporation; (8) the professional corporation; (9) the non-profit corporation; and (10) the joint venture. Not all entity types are eligible for use for any given business. In making the decision about which type of business entity to use, people often compare the advantages and disadvantages associated with the types of entities they are choosing between. The following factors are often among the more common considered in selecting which type of entity to use: (a) The ease or difficulty in satisfying the start-up and any on-going requirements for the type of entity and the associated transactional costs. (b) Various income tax considerations (as to both the entity itself and its owners). (c) Various management and owner control considerations (which is a complex topic). (d) Liability considerations (as to who can legally bind the business entity and the extent of any liability of the owners for the business entity's obligations). (e) How the capital needs of the entity can be raised. (f) The restrictions, if any, on transferring or selling ownership interests. (g) Continuity of business considerations (i.e., what is the effect of the loss of an owner due to, e.g., death, bankruptcy). (h) Whether the type of entity is legally permitted for the type of business. (i) The number of owners required for the type of entity. There are other factors to consider as well. As circumstances vary it is important that one consult with a competent attorney for specific advice about entity selection. << back to columns >> The information provided in this column is not intended to be legal advice but merely conveys general information related to the topic. © 2004 2005 Scott J. Preble, A Prof. Law Corp., Antioch, (925) 756-7111. www.PrebleLawFirm.com.
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