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The Best Business Form for Your Business

Updated on April 5, 2011

Deciding on what business form to adopt for your business can be overwhelming. Each form has their unique filing requirements, regulations, procedures and it may seem as if there are so many forms to choose from. The general types of business forms for the United States are the sole proprietorship, partnership, and corporation. Each form can be broken down into sub-forms, but the focus of this article is to give a general overview of the major three forms.

The sole proprietorship is a form of business in which one person owns all the assets of the business in contrast to a partnership, trust or corporation. The sole proprietor (individual) is solely liable for all the debts of the business.

A partnership is composed of two or more individuals that agree to contribute money, property, or services to carry on a joint business for their common benefit. The partners share the profits and losses in certain proportions, as well as the risks involved. *One sub-form is the Limited liability partnership: Type of partnership comprised of one or more general partners who manage business and who are personally liable for partnership debts, and one of more limited partners who contribute capital and share in profits but who take no part in running business and incur no liability with respect to partnership obligations beyond contribution.

A corporation is an artificial person or legal entity created by or under the authority of the laws of a state. The law treats the corporation itself as a person which can sue and be sued. The corporation is distinct from the individuals who comprise it (shareholders). The corporation survives the death of its investors, as the shares can be transferred. *One sub-form is the Subchapter S Corporation: A small business corporation with a statutorily limited number of shareholders, which, under certain conditions, has elected to have its taxable income taxed to its shareholders at regular income tax rates.*

The major difference between the three business forms is the amount of liability, benefits and authority delegated to those individuals (sole owner, partners, or shareholders) who comprise the company. Once you determine the business form that matches the liability amount you’re comfortable delegating, research the sub-forms of that major business to choose which accommodates your company’s structure.


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