Choosing a Business EntityStarting a Business – Choosing a Business Entity:

At this point in the business startup process, you should already have a long range plan to make sure that your business will be a success and flourish after you have put in all the effort into the relevant steps. Without a business plan, you will not be able to keep track of your projections and accounts, and therefore leading you to possible failure.

One of the final steps of getting your business off the ground is choosing which type of business entity you wish to operate as, as well as purchasing business insurance from Haberman or a similar firm. An entity, basically put, is the legalized form of your business. You will have to choose whether you want to be a sole proprietorship, a partnership, a limited liability company, or a corporation. Sometimes, business owners find that they’re unsure of which one will be best for their company. In order to combat this, some businesses will consider creating a business plan and then getting in contact with a business attorney for advice. Business plans should include a financial prediction of the future. Businesses could consider using the software from Synario to help them with this. Hopefully, that will help business owners to find the correct entity for their company. This article will cover the basics of what each type of entity is and what it can accomplish for you and your business.

Sole Proprietorship

A sole proprietorship is the least formal of all of the entities. It is also the most common type of entity. To create a sole proprietorship you do not need to file any type of documentation with any government entity. You simply open for business. All profits that you earn are reported through your personal tax return. The biggest downfall to this type of entity is that it provides you with no protection. If you were ever to be sued or owe any business debts, all of your personal assets are on the line, including your home.


Partnerships are similar to sole proprietorships in that they are very informal; no legal documentation has to be filed to start one up. The biggest difference is that the business is owned by multiple people, instead of just one. Due to the fact that it is jointly owned, some may choose to draft a partnership agreement just to outline the duties and responsibilities that each partner has, but it is not something that is required. Just like a sole proprietorship, all profits are reported on the tax returns of the partners. Also like a sole proprietorship, partnerships do not provide any legal protection. Partners’ assets are considered collateral for any business debt or as payments if the business were to be sued.

Limited Liability Company

A Limited Liability Company often referred to as an LLC, is the most common type of formal business entity. It is created by filing Articles of Organization with your state government. When it comes to taxes, you have one of two options. You can elect to be a C-Corporation or an S-Corporation. If you choose to be an S-Corporation, you will be taxed like you would be as a sole proprietor. Which means that all of the businesses earnings would simply be reported on your personal tax return. If you choose to be a C-Corporation the LLC will be taxed as a separate entity and you will have to file separate tax returns for your business and yourself. LLCs are popular because they are simple to create, but they provide a layer of protection for the owners. If you have an LLC and your business has debts or is sued, only the business assets are on the line, not your own. This is often paired with general liability insurance, which also protects business owners should they find themselves in trouble.


A corporation is the most formal type of business entity. This is the case because it is considered as having the same rights as a person. It can buy, sell or own property. It can enter into contracts, sue people or other corporations, or be sued. The only right it does not have is the right to vote. A corporation is created by filing Articles of Incorporation with your state government. Like an LLC, a Corporation can choose to be taxed as either an S-Corporation (where the taxes flow through to the owners tax returns) or as a C-Corporation (where the taxes are reported on a separate business tax return). It also provides protection for the owners from being responsible for debts and legal actions. Just like an LLC, only the assets of the corporation are on the line for such actions.


There are many different things to consider when it comes to starting a business. You can allow yourself to alleviate some of the worries and work by meeting with a Certified Legal Document Preparer who can properly educate you on the different types of entities that are available to you and what their pros and cons are. They can also help you to prepare all of the documents that are necessary for creating your desired entity.