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Considerations in Selecting a Business Entity

Considerations in Selecting a Business Entity
February 22, 2016 Shannon Dawes

Considering starting a new business? Your first “business decision” will be to decide which business form (or entity) you will select for your new venture. This is a much more complicated decision than simply deciding whether “Inc.” or “LLC” sounds better at the end of your business name.

There are several important factors you should consider in determining how to structure your new business. These include:

  • Control over business operations: Do you want to make all business decisions or do you want to share decision-making responsibility with others? If you want to retain the sole authority to decide all matters and resolve all issues that arise in your business, you may not be well-served by forming a partnership or corporation. Similarly, if you are intending on going into business with friends or family members a sole proprietorship is probably not the entity you are looking for.
  • Personal liability: If your business does not have the funds or assets available to meet its obligations, do you want the business’s creditors to be able to sue you personally and garnish and seize your personal income and assets to satisfy the business’s obligations? This may seem like an obvious question, but consider this: the less complicated the business entity type you choose, the more likely it is that a business creditor can sue you personally if your business defaults on its obligations. For example, a sole proprietor is held personally responsible for the debts his or her business incurs because (in the case of a sole proprietor) he or she is the business.
  • Tax consequences: The smaller and simpler the business entity type you choose, the less severe of tax consequences you will likely experience. For example, a sole proprietor reports the income generated by his or her business on his or her personal tax return and is taxed at the individual rate. Conversely, a corporation pays taxes on its profits at the corporate rate: if it then chooses to make a distribution to its shareholders (its “owners”) the owners would report this income on their individual tax returns.
  • Ease of operations: The smaller and simpler the business entity type, the easier and cheaper it is to create and manage. Sole proprietors can be formed with very few formalities at all. Conversely, corporations generally require formal articles and by-laws to be drafted and submitted to the state in order to begin operations. The annual reports that must be made by corporations are also more complex and onerous than they are for less-formal business entities.

The choice of business entity for your new business can be made easier by consulting with an Ohio business law attorney. At Dawes Legal, LLC, I will personally visit with you to learn about the goals you have for your business as well as the fears and concerns you may have. I will then direct you to the business entity type or types most appropriate for your situation. Once you have decided on a business entity, I can assist you in taking the necessary steps to set up your business and get it off to a good, solid start. Contact Dawes Legal, LLC today at (614) 733- 9999.