Types of business entities

Individuals in Illinois who are starting a business may wonder what type of legal structure is best for the company. There are several different entities, and the form an individual chooses depends on a number of factors including the size of the business.

An individual who runs a business on their own may choose a sole proprietorship. Individuals can do their business taxes on their personal returns in a sole proprietorship, but it may be difficult to get a loan for the business. In addition, individuals are also personally liable for the business's debts. If two or more individuals are forming a business, that business can be a general or limited partnership. A general partnership is simpler and generally more appropriate for a new small business. As with sole proprietorships, individuals in partnerships may be liable for business debts.

A corporation protects against that liability but can also be expensive to set up and maintain. Rules and taxes can be complex. Many small businesses may prefer to set up an S corporation. This provides the liability protection of a regular corporation with a simpler structure and simpler taxes. However, an S corporation can also be expensive to set up. Individuals may also wish to opt for a limited liability company or a limited liability partnership. These options may include some of the advantages of corporations and partnerships.

An individual weighing the different types of business entities may need to consider how many people are involved, how the business is funded and how much revenue the business will take in before making a decision. An attorney who is familiar with business law and the taxes a venture might face may be able to provide advice to an entrepreneur seeking to start a business.

Source: Entrepreneur.com, "Incorporating Your Business", November 30, 2014

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