If you are starting a business, one of the most important decisions you will make is choosing the legal structure for your company. This decision determines the amount of taxes you pay, the personal liability you face, revenue opportunities and even how much paperwork you’ll do.
The type of business entity that’s best for your company depends upon your business, the number of employees and the potential taxes you will pay here in New York. An attorney with experience in laws regarding business formation can help you determine the best fit.
Types of entities for businesses
The most common forms of business entities are:
- Sole proprietorship: This is the most common business type where the owner has complete control but is also personally liable for the business’s financial obligations.
- Partnership: Involves two or more people who agree to share in profits and losses for a business. Partners can report gains or losses on their individual tax returns, but each one is responsible for the company’s finances.
- Corporation: This legal entity separates the business from the people who created it and is responsible for all obligations while individuals avoid personal liability. There are certain tax disadvantages, and corporations face extensive recordkeeping requirements.
- Limited liability company (LLC): This hybrid entity allows owners to benefit from both corporation and partnership forms of business. Profits and losses are passed on to owners without business taxes, but owners are shielded from personal liability.
Factors for selecting a business entity
When deciding which entity is right for your business, consider the following:
- Do I need to be insulated from legal liability?
- What are the tax implications?
- What are the startup and continuing costs?
- Do I need a more flexible structure?
- What are the future needs of my business?
Start your business on solid footing
When starting a new company, the decisions you make at the beginning could have the most impact by setting the stage for its direction and success. One of the most important steps can be contacting an attorney here in New York with extensive experience in business formation who can help you make the right decisions for your company.