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Every great business starts with a simple idea. But once you have your idea fully formed and are ready to hit the ground running, what happens next?

The first major decision you should make about your new business is what type of business entity is going to be the best fit. Structuring your business in the correct way is crucial to your success with your new business. In almost every single scenario, forming a legal business entity is a far better option than continuing as a sole proprietorship.

Being a sole proprietor means that your personal assets (your home, your checking and savings accounts, and even your retirement funds) could be on the line to pay for a business liability. If you, like most business owners, want to avoid this, then a legal entity is the way forward.

What Type Of Business Entity Should I Form?

There are many different factors at play when it comes to determining the type of business entity that is best suited for your new business. Some of these factors include:

  • The amount of personal liability you are willing to take on
  • How you would like your business profits and personal income to be taxed
  • Your desired management structure
  • Whether or not you foresee adding equity partners in the future
  • The capitalization of your business

States have their own laws that dictate how business entities need to be set up and how they must conduct business. Following these specific laws will help determine your legal responsibility when it comes to your business entity. Additionally, cities and counties may have their own set of taxes and regulations you must comply with.

Covering All Of Your Bases

At Stafford Law Firm, we are here to ask you every single question about your business, even ones you may not think to ask yourself so that there is no risk of missing vital information. We will then be able to discuss the details of the various options available to you.

Some of the questions we will help you consider include:

  • Where your entity should be formed
  • What type of entity you should choose
  • How you should structure your bank accounts
  • What insurance is necessary (what type and how much)
  • Which agreements are most pressing to create
  • What steps you can take to protect your intellectual property
  • What conversations you should have with your CPA

Understanding The Most Common Business Entity Structures

General Partnership

In a general partnership, each partner will participate equally in the running of the business and as such will share the business’s profits and losses equally as well. It is important to note, that while forming a general partnership is quite easy, a general partnership leaves all partners personally liable for the obligations of the business.

Limited Liability Partnership (LLP)

An LLP is similar to a general partnership where the partners can actively manage the business, but it also will provide some level of liability protection. The protection awarded by the LLP will help protect one partner from the actions of another, or even of their employees. LLPs are very common among professional groups such as physicians.

Limited Partnership

A limited partnership is made up of at least one partner who manages and controls the business as if they were a general partner, while their other partner(s) will contribute to the capital of the business and receive a share of the profits. The limited partners will not have a hand in managing the business and they can only be held liable for their contribution amount.

Limited Liability Limited Partnership (LLLP)

An LLLP must be registered with the Secretary of State as such. This official registration helps to limit the liability of the partners in a Limited Partnership in a similar way that an LLP helps to limit the liability of a general partnership.

Limited Liability Company (LLC)

An LLC is by far the most common business entity formation entrepreneurs seek out. An LLC is comprised of members that all have a limited liability. These members can manage the company themselves, or they can bring in others specifically designated as managers.


A corporation is a type of business entity that helps limit the liability of the shareholders. Additionally, with a corporation, the management of the entity can be centralized.

S-Corporation (S-Corp)

An S-Corporation (or S-Corp) is not actually an entity type itself. S-Corporation is an option that LLCs and corporations can choose as a status for tax purposes. Essentially, S-corp status declares that your business entity is pass-through (meaning the profits and losses sustained by the business are passed through to the owner’s personal tax returns.

Reach Out To An Experienced Business Entity Formation Lawyer

If it is time to turn your great idea into a new business venture, give us a call right away. We will help you sort through the options and determine what type of business entity is the best fit for you!

Reach out today for a free consultation.

Frequently Asked Questions

A business entity is formed for an organization to conduct business. The way in which the business is formed depends on the type of entity they chose. The various types of business entities allow the owners to limit the amount of personal liability they have in the business.

There are numerous different types of business entities that a business can be set up as. In general, however, these entities fall into the following three categories:

Sole Proprietorship

A business entity owner is the person or persons who established the business entity and now exercise ownership of the business. Business entity owners can have a wide range of liability and direct operational control over the business, depending on how the business was structured.

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