When establishing a business, one of the first decisions that needs to be made is the type of structure that the business is going to be registered as. The most common business types are: Sole Proprietorship, Partnership, Corporation and Limited Liability Company (LLC). Each type of business entity has its own advantages, disadvantages, legal and tax considerations. The business type chosen for your business will depend upon your personal and business needs and your level of financial and legal risk.

• Sole Proprietorship - The simplest form of business in which a sole owner and his business are not legally separate entities. A sole proprietor may operate under an assumed name, however the owner is solely liable for business debts and tax liability.
• Partnership -A partnership is similar to a sole proprietorship, except that two or more partied are involced. In a General Partnership, each partner is responsible for all the debts of the business. In a Limited Partnership, there are both limited and general partners. The general partners manage the business and are individually liable for the debts of the partnership. The limited partners losses are limited to the amount of money they invested in the partnership.
• Corporation - A corporation is a legal entity with all rights and responsibilities as an individual. A S-Corp, if eligible, is exempt from federal income tax. The shareholders pay tax on the corporation's income by reporting their share of pass-through items on their own individual income tax returns.
• Limited Liability Company (LLC) - The LLC is similar to a corporation, as the owners are protected from personal liability. The LLC also receives the pass-through tax treatment similar to that of limited partnerships.

Benefits of Incorporating

• Limits personal liability of officers, members and owners.
• Protects personal assets from the business.
• Protects corporate assets from the owners and officers.
• Can build separate business credit file.
• Easier to raise capital and solicit investors.
• Lowers tax liability.

If you are unsure of which business entity is right for you, seek legal advice.