Establishing a Business Entity

Forming a business entity may at first glance seem to be a daunting task, when in fact it’s really not. You simply have to choose what type of entity you want to form, fill out the paper work, pay a small fee and that’s it. The necessary paper work can usually be found on your state’s Secretary of State website. Some states, however, have another department that takes care of bsiness registrations. (All the links are below)

You don’t need to pay an attorney allot of money or do you need to pay one of those online filing websites. The only fees you should pay are the filing fees charged by the state. You can save a considerable amount of money by filing the papers yourself.

Here are 5 for-profit entities along with a short description and some pros and cons. Some states offer a few other types of entities that may offer a better choice for certain circumstances. Since filings are done on the state level; the steps, fees, laws, forms, and waiting periods are all individually unique to that state. Make sure that you understand the policies within your state. At the end of this article you will find 50 links to the fifty Secretaries of State in the United States. The forms needed to file can be found on these sites. If you have any questions or have trouble finding the necessary forms please contact us.

Sole Proprietorship - A business managed and owned by one person.

Pros: The owner is entitled to all of the profits according to his/her will. The owner also has complete control over every managerial decision. Filing fees are relatively cheap.

Cons: Unlimited liability, which means the owner, is personally liable for ALL of the business’s liabilities such as its debt. Unable to sell stock.

Partnership – Two or more people own the business.

Pros: Can establish General and Limited partners. General partners manage the business and equally share liabilities. Limited partners may not be directly involved with management and are liable only for that relative to their investment.

Cons: The partners are liable for the liabilities of the company just like in a Sole Proprietorship. Unable to sell stock.

Corporation – A business that is owned by shareholders and managed by a board.

Pros: Personal limited liability protection. The owner(s) are not completely responsible for the business’s debts and liabilities. Corporations can sell stock in-order to receive money from investors.

Cons: The amount of time and money is considerably higher than forming other business entities. Possibility of double taxation. Lots of regulations concerning record keeping and holding meetings.

S Corporation – A specific type of corporation that is formed to avoid double taxation. Double taxation is when the corporation pays taxes and then the shareholders pay taxes on the dividends they receive.

Cons: The amount of time and money is considerably higher than forming other business entities. Lots of regulations concerning record keeping and holding meetings.

Limited Liability Company (LLC) – A business entity that offers the liability protection of a corporation, and offers the tax features and managerial perks of a sole proprietorship or partnership.

Pros: Personal limited liability protection. The owner(s) are not completely responsible for the business’s debts and liabilities. Owner(s) has the power to make all managerial decisions. When there is one owner the business is taxed as a sole proprietorship, when there are several owners it is taxed as a partnership.

Cons: Filing fees are generally higher than sole proprietorship or partnership. Unable to sell stock.

Links to Secretary Of State websites:

Tags: attorney, business, cons, corporation, forming, inc, incorporate, legal, liabilities, llc, llp, lp, organizing, partnership, pros, protection, Secretary of State, sole proprietorship, taxes

This entry was posted on Thursday, February 25th, 2010 at 1:08 am and is filed under Finance and Business. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.

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