The choice of business entity is one of the most crucial steps when an entrepreneur decides to turn an innovative idea into a reality. Selecting the proper entity can have a significant impact on the business’s legal structure, overall operations, taxation, and liability, especially for the founders. An experienced business lawyer in Los Angeles understands the many types of business entities to help an entrepreneur make an informed decision.
A sole proprietorship is typically known as the simplest structure for a business entity. This type of business entity is owned and operated by one individual. As such, the sole owner is fully responsible for all parts of the business. One of the main advantages of a sole proprietorship is the simplicity in its formation because of the limited formalities and government regulations involved. On the other hand, the owner in a sole proprietorship generally has unlimited personal liability for the debts and obligation of the business.
Limited and General Partnerships
Partnerships are similar to sole proprietorships; however, the ownership and management responsibilities are shared between two or more individuals. Partnerships are commonly formed in one of two ways: general partnerships or limited partnerships. In a general partnership, the partners each share equal responsibility and unlimited liability. In a limited partnership, the (limited) partners have the benefit of limited liability for the debts and obligations of the partnership but also have a limited role in the business’s management.
Limited Liability Partnerships (LLP)
A limited liability partnership is a type of business entity that represents a hybrid between a partnership and a corporation. One of the main benefits of an LLP is that it provides the limited liability protection to the partners, which can help shield them from personal liability for the acts of other partners. LLPs are often limited to professional service business, such as lawyers and accountants, who want the protection of limited personal liability while also enjoying some of the flexibility that comes with a partnership structure.
Limited Liability Companies (LLC)
LLCs have become a popular choice for many small to medium-sized businesses due to the flexibility and limited liability protection offered. Additionally, LLCs provide tax benefits through the pass-through taxation, which allows the owners, who are known as members, to report profits and losses on their own tax returns. The various management structures and tax treatments available in an LLC also make it a versatile option for many types of businesses.
Corporations differ in that they are completely separate legal entities from their owners, who are known as the shareholders. Due to this separation, corporations generally offer the greatest amount of liability protection. As such, the shareholders, under most circumstances, are not personally responsible for the corporation’s debts and obligations. Additionally, corporations have more options for raising capital easier and quicker than other business entities, including through the issuance of stock. The extensive regulations, such as regular shareholder meetings and strict maintenance of corporate records, are one of the main negatives of a corporate entity.
An S Corporation is a basically a regular corporation that has elected to get tax as an “S-Corporation” to obtain different tax treatment. It allows a corporation to avoid the typical double taxation by electing to pass profits and losses through to the shareholders’ individual tax returns. Therefore, the corporation’s income is solely taxed at the individual level, similar to an LLC’s pass-through taxation. Unfortunately, there are specific requirements that and entity must meet to qualify as an S Corporation, such as a limited number of shareholders and only one class of stock.
Take Action Today and Consult with an Experienced Business Lawyer in Los Angeles to Determine the Right Business Entity
Business formation is a crucial decision that requires careful consideration of many factors in order to create a solid legal foundation for a new venture. Some of the common factors include the amount of liability protection for the owners, taxation, and management structure. Each type of business entity has its unique advantages and disadvantages, and working with a business lawyer in Los Angeles is essential to navigating the legal intricacies and making a well-informed decision.
The Hakim Law Group is ready and able to assist. Our team of highly experienced business lawyers in Los Angeles stand ready to help you establish a sound foundation for your business. For further information or to schedule an appointment, please contact The Hakim Law Group at 310.993.2203 or visit www.HakimLawGroup.com to learn more.