When organizing a new business, one can choose to operate as a sole proprietor, a partnership, a corporation, or as a limited liability company (LLC). Which is best for your business?
To decide on the right the legal form for your business:
- Decide whether you are running this business by yourself or with others involved
- If by yourself, you will be running a sole proprietorship.
- Is it more important to you to have a simple business and tax structure or less personal liability for debts and corporate judgements?
- If you want a simple business and tax structure with more than one person, choose a partnership.
- If you want to limit your personal liability for debts, choose to incorporate.
- If you are incorporating, would you trade more flexibility for greater confusion in the tax laws?
- An LLC (which needs to be set up by a lawyer) is more flexible in management and taxation, but state and federal laws may conflict on how to manage them.
- A sole proprietorship can include your spouse.
- A corporation and an LLC are more expensive to create than a partnership or sole proprietorship.
- Many states allow an LLC to be formed by one person.