If you are starting a new business in Phoenix, congratulations! You have chosen one of the best areas in the country to launch your new business. As we are sure you are aware, choosing the right entity type for your business requires careful consideration and the help of an experienced law firm that understands corporate law. Here are a few tips to keep in mind when deciding which entity type is the ideal choice for your business:
There are four different types of business entities to choose from. Here are a few tips to keep in mind when deciding which entity type is the ideal choice for your business:
- Sole proprietorships are typically the most common way to organize a business due to the simplicity upon formation and the amount of owner control allowed, but the owner becomes personally liable for all financial obligations and liabilities incurred by the business, which is its main drawback.
- The second type of business entity is a partnership, which is when two or more individuals agree to share in a business’s profits and losses. In these situations, each partner is personally liable for financial obligations from the business, but the business benefits since taxes from profits are passed on to the individual partners rather than the business itself.
- Third, there is the corporation. This famous business entity is created solely to conduct business, meaning that it is an entity entirely separated from the individual or individuals who created the corporation. Corporations can make profits and are taxed and held liable for their actions in the way that any individual might be. This concept of corporate personhood is the primary benefit of the corporation since it shields the founders from personal liability. However, forming a corporation costs relatively large amounts of capital and requires quality record-keeping, which can become an exorbitant and time-consuming endeavor in its own right.
- Finally, there is the limited liability company, or LLC. This business entity is a hybrid of sorts between a corporation and a partnership. An LLC is designed to pass on the profits and losses from the business to owners without taxing the business (similar to a partnership) without requiring owners to have liability for the business (similar to a corporation). As a result, the LLC has become a popular choice for many business owners, but the LLC has its downsides as well. Given the relative novelty of the LLC, it is treated differently with regards to taxation from state to state. For businesses that operate in several states, forming an LLC in one state can significantly affect how the business is viewed and treated elsewhere. If you choose an LLC for your business, be sure to seek out an experienced corporate law attorney who is familiar with the legal rules and regulations concerning LLCs as a general matter.
No matter which business entity is best for you, contact May, Potenza, Baran & Gillespie to help you plan for your new business. We are a proven Arizona corporate law firm with a track record of helping businesses get off the ground and stay afloat.
When you enlist the services of MPBG, you get an experienced, diverse team of advocates in your corner who work collaboratively, move quickly, and think differently.