When an entrepreneur starts a business, they may not know which type of business structure to choose. There are four main structures, called a sole proprietorship, a partnership, a limited liability company and a corporation.
Sole proprietorship and partnership
A sole proprietorship is a simple business structure and is used often. Some owners prefer this option because they can have complete control over the business, however there are some risks. If a sole proprietor is sued, his or her personal assets may be subject to a lien. There are no administrative requirements, but the owner must obtain and pay a fee for a business license.
There are two types of partnership. A limited partnership has general partners and limited partners. Limited partners can invest in the business and share the profits. In addition, they are not personally responsible for business debts and obligations. A general partnership has two or more participants who carry out the business for profit.
Limited liability company and corporation
A limited liability company is owned by one or more members who can manage the business. The members have limited liability, meaning that their only risk is the investment in the company. The members must file Articles of Incorporation with the Secretary of State.
A corporation has three parties and each one has different responsibilities. These are the shareholders, directors and officers. This business structure option also provides limited liability.
An experienced business law attorney can help prospective business owners understand their options and help them create the right business structure.