The Scottsdale Arizona corporate attorneys at Lotzar Law Firm, P.C. have an in-depth knowledge of the major types of business organizations. We can review your company’s goals and your current organizational status and help you to make an informed choice about what type of structure is right for you. Call today to schedule a consultation and learn more.

Understanding the Major Types of Business Organizations

While there are a variety of different ways to structure a business, the three main types of business entities include:

• Sole Proprietorships

Sole Proprietorships are very common because they are simple to form. A Sole Proprietorship is simply one owner operating an organization that provides goods or services. The owner may have employees.

To start a Sole Proprietorship, the owner simply needs to begin operating his organization. The business owner must comply with local laws for permitting or licensing for the particular type of company. The simplicity of beginning operations is the biggest advantage of Sole Proprietorships. There are no ongoing paperwork filing requirements and the business does not have to file a separate tax return, nor is it separately taxed on profits. All income and losses pass through to the owner and are included on his personal tax return.

There are significant disadvantages to a Sole Proprietorship. Selling the business is usually difficult or impossible, and the business frequently dies with the owner. The owner is also personally liable for any judgments against the business and for all business debts.

• Partnerships

Partnerships are also a simple form of business entity. Partnerships are very much like a Sole Proprietorship except they allow for multiple owners. There are generally few initial paperwork requirements to start a partnership, but the co-owners should create a comprehensive Partnership Agreement to avoid problems down the line.

An interest in a partnership can be difficult to sell and the business may die if any of the co-owners dies or departs the organization. Simplicity of formation is a major advantage, and profits and losses also pass through to owners of the partnership just as with a sole proprietorship. The major disadvantage of Partnerships is that owners face personal liability just as with a Sole Proprietorship. Limited Liability Partners (LLPs) can sometimes mitigate the risk but not all partners can be shielded from liability.

• Corporations

Corporations are the most complicated business organization to form and require the most ongoing paperwork. The Corporation must file a separate tax return and is generally subject to more regulation than a Partnership or a Sole Proprietorship. Depending upon the chosen corporate form, double taxation is a possibility.

A Corporation is a separate legal entity from its owners, so ownership can be more easily transferred and the business can outlive individual owners. Owners are also shielded from liability and their potential loss is typically limited to the amount of invested in the business.

Which of the Major Types of Business Organizations is Right For You?

Deciding among the major types of business organizations can be complicated. Lotzar Law Firm, P.C. can evaluate the needs of your organization and help you to determine the best way to structure the business. Call today to speak with a Scottsdale corporate lawyer to learn more.

There are myriad organizational structures and choosing the correct one of your company is essential to achieve your business plan goals and to minimize risks.

Topics covered in this whitepaper include:

1. Factors to Consider in Choosing the Type of Business Entity to Operate
2. The Number of Owners and Stakeholders
3. Whether Your Organization Will be Operating for Profit
4. The Complexity of Initial and Annual Paperwork Requirements
5. The Desired Tax Structure
6. A Future Intention to Take Your Business Public
7. Liability Protection

Click here to read the whole article or download the PDF.

To ensure that you have a plan in place to protect your interests in your organization, there are 4 D’s in business planning that should be considered whenever you start a new company.  An experienced Scottsdale Arizona business lawyer at Lotzar Law Firm, P.C. can help you to understand the 4 D’s in business planning and advise you on how to take the right steps to be prepared for any future developments that could threaten the value or operations of your organization.

The 4 D’s in Business Planning

The 4 D’s in Business Planning stand for:

• Divorce
• Disability
• Death
• Discharge from employment

The 4 D’s need to be considered in the creation of any business plan or when any organization first begins operations. Whether you are the sole owner of your organization or you are entering into a partnership or other shared-ownership arrangement, planning for these potential future events can ensure that your organization can continue to operate and that you can maintain the value of your business no matter what happens down the line.

Planning for the 4 D’s is essential because otherwise there could be a costly and expensive future disagreement that must be resolved in court. If you do not plan in advance, operations of your organization could be interrupted by a future dispute and your business could lose value, or an interest in your business could end up being owned by someone who you cannot effectively work with.

In a divorce or a death, for example, the spouse of a business owner could be awarded a share in the business or the business could be sold or transferred to a family member that the other business owners do not wish to work with.

An Agreement put in place before any of the 4 D’s happen will allow for business owners to avoid undesirable transfers of the organization or other shifts in ownership or operations that could adversely impact operations.

When considering the 4 D’s in business planning, a variety of tools can be utilized to protect the organization. A detailed Buy-Sell Agreement is common and an attorney can assist with drafting an effective and enforceable contract. Business owners frequently purchase life insurance to make it possible for partners to buy them out in the event of a death.  Incorporating an organization can also make it possible for the organization to survive beyond the lives of individual owners, as well as providing protecting for the owners from personal liability.

Lotzar Law Firm, P.C. has extensive experience representing clients and helping them to consider the 4 D’s in business planning.  Call or contact our experienced Scottsdale Arizona business law attorneys online today to get started protecting the future of your organization.