Phase Two: Deciding the Form of Business Entity

Once one has an unshakable decision to start a business, the next step is to decide what type of business the entrepreneur should form. When setting up a business several choices are available. Many things should be considered when making the choices. Some of the most important considerations are the tax codes and laws governing the degree of personal liability an owner must assume for his business. Foe example a business can be set up as an unincorporated partnership, a proprietorship, or limited liability company (LLC). In all of these companies the tax responsibilities of the company pass through to the owner. A business also can be set up as a corporation, which has its own tax consequences, but limits personal liability of the owner. Additionally an s-corporation may be set up which passes the tax liability through to the owners, but protects them from personal liabilities in other areas.

Many small business owners choose the corporate form of operation because of the protection it affords an owner’s personal assets. LLCs also provide this protection.

Establishing the form of the business is often the first area in which an entrepreneur must seek outside consultation. A person going into business for the first time should consult a qualified business professional and then employ an attorney to finalize the decision and perform the required paperwork and filings.