Businesses vary according to their goals, costs, investor interest, risk tolerance, and financial standing. There will never be a single, perfect choice for everyone when it comes to the best entities to use for your business. The options vary from sole proprietorship which provides no protection for personal liability to a complex choice that has multiple layers of business entities and provide maximum personal liabilities and anything in between. 

Listed below are a few options: limited liability limited partnerships (LLLPs), family limited partnerships (FLPs), C corporations, S corporations, and sole proprietorships. We have listed for you the advantages and disadvantages of each one:

Sole Proprietorship

• Business and person are equal
• There is 0 liability protection meaning that debts are liable to the owner
• No filing requirements & no registration cost
• Taxes are reported on personal tax returns
• There is no requirement to pay unemployment tax
• Owners can mix business and personal assets with no issues
• Owners can take loans only and can’t raise money from selling interest
• Rarely succeeds after the death of the owner(s) meaning they could lose value

Limited Partnership

• Simple and inexpensive to form
• General partners are liable for any dent and ultimately control the business
• Partners do not have control over the business and are usually exempt from the debts incurred
• No annual gatherings required
• Very few formalities required
• Personal tax returns reflect the Partners’ shares of profit & loss
• Taxes tend to be lower versus an LLC or corporation

Limited Liability Company

• Owners are shielded from personal liability for debts incurred by the company
• LLC utilize partnership-style, pass through taxation (advantageous for small companies especially)
• Simple operation and maintenance
• Can offer better liability protection than corporations
• Utilize charging order protection.
• LLC’s are not ideal for businesses looking to become public or make money in the capital market
• More expensive to set up than partnerships
• LLC’s, more often than not, require periodic filings with the state along with annual fees
• Some states don’t allow LLC’s

Corporations

• Owners are shielded from personal liability for company debts or responsibilities
• Corporations have legal precedent to guide their owners
• Best choice for companies that plan to go public at some point
• Corporations can raise money through the sale of securities
• Corporations can utilize the transfer of securities by transferring ownership
• Corporations can have an unlimited lifespan
• Corporations are allowed to create tax benefits sometimes (except C-corporations could be subject to double taxation on profits)
• Corporations require many annual meetings while the owners/directors must observe particular ones
• Corporations are more expensive to start
• Corporations require periodic filings with the state along with paying annual fees

Speak with a legal advisor familiar with these concepts to find out which entity is best for your business.