When starting a new business venture, it is essential to operate your business as the correct entity in order to reduce liability risks, protect your investment, and ensure appropriate tax treatment. There are many factors that affect which business entity is right for you and it is advisable to speak with an experienced attorney when forming your business.
Lotzar Law Firm, P.C. has extensive experience with start-up companies of all sizes. Our attorneys can assist both for-profit and nonprofit operations to select the right business structure and to complete all initial requirements associated with forming the appropriate business entity.
Factors to Consider in Choosing a Business Entity
When choosing the appropriate business entity, factors to consider include:
- The number of business owners: The simplest business structure, Sole Proprietorship, can have only one owner. The owner and the business are the same legal entity. For any business operated with two or more parties, an alternative business structure such as Limited Liability Company (LLC); Limited Liability Partnership (LLP); C-Corporation or S-Corporation will need to be formed. C-Corporations are the organizational structure that makes transferring ownership interests easiest and S-Corporations do not have the ownership restrictions that limit ownership in other business entities, including S-Corporations.
- Liability protections: Sole Proprietorships and Partnerships provide no liability protection to owners. If the business is sued or goes into debt, the individual business owners can become responsible for the debts and liabilities. LLCs and LLPs can provide some liability protection, but the broadest protection will require the formation of an C-Corporation or a S-Corporation. Both C-Corporations and S-Corporations allow for the business to operate as an entirely separate legal entity, and the losses of owners are generally limited only to the amount invested.
- Operational complexities: All business entities other than Sole Proprietorships will require paperwork to be filed with the state. This paperwork will typically need to be filed both when the organization begins operations and on an annual basis. C-Corporations and S-Corporations generally have the most complexities in terms of paperwork and can have higher fees for annual operations.
- Taxation: Most business entities, including S-Corporations and Partnerships, will allow the business to pass through profits and losses to owners. This means that income and losses are declared on the individual tax returns of the company’s owners. For C-Corporations, the company is taxed, and individual owners may also be taxed on distributions, dividends and profit sharing. An attorney may be able to help avoid this type of double taxation, but this is not always possible.
Getting Legal Help with Business Entity Formations in Maricopa County
These are just a few of the myriad considerations associated with choosing the appropriate business form. It is always best to consult with an experienced attorney for assistance in deciding on the correct business structure for your needs. Contact Lotzar Law Firm, P.C. today for help forming your business.
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