If you own your own business or are even just contemplating a new business venture, one of the first decisions that a business owner must make is to structure your business. This process can seem overwhelming and confusing but must begin with a complete understanding of the definitions and differences between the distinct business structures. The type of business structure determines day-to-day operations, tax liability, and the paperwork that the business owner must file. The most common business structures used today are sole proprietorships, partnerships, corporations, and limited liability companies.[1]
Sole Proprietorship
A sole proprietorship is owned and operated by a “sole” one person-the sole proprietor. It is a very common structure choice and is an option for those looking to have complete control of their business. The sole proprietor will be liable for all the business’s debts, losses, and liabilities.
Partnerships
Partnerships occur when two or more individuals own and operate a business together. There are two types of partnerships: general partnerships and limited partnerships.
- General Partnership: partners manage the business, assume responsibility for the partnership’s debts, and have equal shares of all profits and losses.
- Limited Partnership: this structure has both general and limited partners and needs at least one general partner and one limited partner to get started. Limited partners only serve as investors for the business and usually have no rights in making decisions for the business (hence the title “limited”). These limited partners get ownership without assuming responsibility and risks, whereas general partners have control and responsibility.
Corporations
A corporation is separate from the owners and is treated as an independent legal entity under the law. As a result, they have the greatest protection from personal liability but have the downfall of being much more complex than other business structures.
Limited Liability Company (“LLC”)
LLCs are a popular structure choice because they provide the same limited liability as a corporation but are simpler and less expensive to set up and run.[2] In addition, they can run almost any type of business of any size, from one-owner operations to a business with many co-owners. New York is one of three states that requires a publication requirement.
Professional Services
New York provides a unique subset of corporations and LLCs related to businesses for professional services in many states. This subset for professional services is usually reserved for industries that require a license to provide those professional services, such as lawyers in a law firm or doctors in medical practice. When forming entities to provide medical or legal services, evidence of good standing is generally required for setting up the entity.
Hopeful business owners: your choice matters
Starting a business is not easy, nor is choosing the structure that is the best fit for your proposed business. In making this crucial decision, it is best to work with an attorney specializing in business law who can assist you in making the right choice for your business. If you are thinking of starting a business and don’t know where to begin, contact Laizure Metz Legal Services at christopher@laizuremetzlegal.com or phone at (347) 625-7854.
[1] https://www.patriotsoftware.com/blog/accounting/a-guide-to-basic-business-structures/
[2] https://www.nolo.com/legal-encyclopedia/what-is-a-limited-liability-company.html