When you decide to start a business, you need to decide on what kind of entities you are going to use for your business.
But, what do you mean by a business entity?
In easier language, a business entity simply means an organization that is formed by more than one person to engage in business. The type of entity you want to choose for your business will determine which income tax return you will have to file. But, most importantly, it will determine the amount of tax you will have to pay and what will be your risk exposure. This decision has legal and financial implications for your business. That is why understanding each business entity type will help you choose the right option for you and your business. Typically, businesses are formed at the State level. Business entity types are recognized on different grounds by the State Government. A lot of small businesses choose between the following types of entities –
- Sole Proprietorship
- General Partnership or GP
- Limited Partnership or LP
- Limited Liability Company or LLC
- C Corporation
- S Corporation
In this guide, attorneys in Knoxville, TN have shared some insights on each of these business entity types so that you can decide on a structure for your company. Keep Reading to find out.
As we discussed above, there are a lot of types of business entities that you can choose from. Here is a list of some popular ones that you can choose from in TN –
Sole Proprietorship –
In other words, you can also call it a sole trader, individual entrepreneurship, or proprietorship. It is an unincorporated business that is run by one person or jointly between the married couples. Here there is no legal distinction between the owner and the business entity.
General Partnership or GP –
It is an unincorporated business usually run by 2 or more people. They have a fair share of agreement in the assets, profits, and liabilities of the business.
Limited Partnership or LP –
The unincorporated businesses are run by a minimum of 2 general partners or at least one limited partner.
Limited Liability Partnership or LLP –
In LLP, the type of partnership structure offers liability protection for each and every partner.
Limited Liability Limited Partnership or LLLP –
It is a type of partnership that offers some liability protection to the GPs.
Limited Liability Company or LLC –
It is an unincorporated legal structure of the business that offers liability protection to all the owners and the members.
Professional Limited Liability Company or PLLC –
In this LLC Structured professionals like accountants and doctors are included.
C Corporation –
An incorporated legal structure consists of officers, directors, and shareholders.
S Corporation –
It is an incorporated legal structure that is for businesses that offer pass-through taxation.
B Corporations –
Corporations that are for-profit and meet environmental and social standards.
Professional Corporation –
A corporate structure designed for professionals like doctors, accountants, etc.
Non Profit Organizations –
Corporations that benefit the public and are not formed to earn profit.
Cooperative –
It is a private member-owned association that is designed to meet the needs of economic, social, and cultural aspects through a democratically controlled and jointly owned enterprise.
Municipality –
A town or a city that has a local government and a corporate status.
Estate –
It is a legal entity that is created of the sum of a person’s assets i.e. legal rights, entitlements, and interest to a property of any kind.
As we can see above, there are a lot of business entity options available out there. But most business owners and entrepreneurs prefer to choose from the six most common ones viz. –
- Sole Proprietorship
- General Partnership or GP
- Limited Partnership or LP
- Limited Liability Company or LLC
- C Corporation
- S Corporation
Conclusion –
As we can see, business entities have their own set of rules and regulations and different purposes based on the business scenario. You can always hire a business formation lawyer as it has many advantages for your startup. The “one size fits all” concept does not fit here. This is because the choice you make will have a direct impact on your finances as well as your risks and liabilities. The majority of business owners and entrepreneurs start as LLC because it offers limited liability protection and also pass-through taxation benefits. As your company will keep growing, you can incorporate your business by becoming a corporation. Even if you have multiple partners, a general partnership or limited partnership can be a good starting point.
If you still are not sure how to go about it, you can get in touch with attorneys in Knoxville who will assist you in the right direction.
Looking for the best business formation attorney near you? Click here and get in touch with them today!
