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03.27.2015

Selecting the best business form is important

Starting a business may be the realization of a dream for many individuals. It is important that hopeful entrepreneurs place energy and enthusiasm into understanding how to form their business to facilitate the long-term success of the business. There are a variety of different business forms that an entrepreneur can select for a new business. Because each business form has important tax and liability consequences associated with it, it is important to understand the different business form options.

Three business form options include sole proprietorships, limited liability companies and corporations, among others. A sole proprietorship works best for businesses run by a single individual and creates no distinction between the business and the individual which includes for tax and liability purposes. Though a sole proprietorship may be a fairly basic business form, licensing and legal requirements still apply and should be fully understood and considered.

limited liability company (LLC) is sometimes considered to enjoy the best of both worlds when referring to a partnership and a corporation. Limited liability companies are not taxed as separate entities the way a corporation is so its members are taxed like partners or as a sole proprietor would be, however, unlike a sole proprietor, members of an LLC enjoy limited liability similar to what shareholders of a corporation enjoy. There are important requirements to forming an LLC so it is essential to ensure that all necessary procedures and steps are properly followed.

These are a few of the business forms available to new entrepreneurs. Starting a business is a big step and selecting the best business form for the business is an important step so it is always helpful to be familiar with the different business formation options.

Source: U.S. Small Business Association, “Choose Your Business Structure, Sole Proprietorship,” accessed on March 25, 2105