Choosing from the different types of business entities

The type of business entity chosen by a new company could have a profound effect on how the business is run, how profits are distributed and where liability rests. It may be an easier decision for a large company to form a corporation or limited liability company (LLC). These types of business entities may make sense for a company with a large number of owners. However, for many Illinois small businesses, neither of them may be the best choice.

It is not only the pros and cons of each type that need to be considered. There is a cost associated with forming and maintaining a corporation or a LLC. In addition, both business and legal paperwork requirements must be met on a yearly basis. Corporations and LLCs do protect individuals from certain liabilities, but those protections may not be worth the cost and effort to some small business owners.

The documents most small businesses sign, such as loans and leases, may hold the signer personally liable regardless of the type of business entity. Therefore, it may be beneficial to choose to be a sole proprietorship or a general partnership. Of course, these choices have their benefits and downsides as well.

It can be difficult to make a choice between the different types of business entities available. Each type of entity has different business and legal advantages and disadvantages. Having at least some knowledge of each type could help a prospective Illinois small business owner make the choice that will give the business the best chance for success while protecting the individual interests of the owner or owners.

Source: utsandiego.com, SCORE: Do I need to form a corporation?, John Bjeldanes, Feb. 7, 2014

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