Selection of A Business Entity

The form that owners select for a particular business will depend on the particular relationship among the owners, the business objectives and the particular circumstances of the owners at the time of organization. There are several alternative forms of business organizations: sole proprietorship, general partnership, limited partnership, limited liability company, C corporation and S corporation.  Other less common forms may include trusts and joint ventures. There are also special considerations for professional practices such as professional corporations and professional limited liability companies. Each form of business has its advantages and disadvantages. Each has specific attributes regarding owner liability, owner control, day-to-day operations, and transferability of ownership interests. Each form of business also has specific organization and maintenance requirements. Some forms of doing business are more expensive to organize and administer. Finally, each type of organization has different tax attributes.

In choosing the form of business that is best, owners must balance the advantages and disadvantages of each form of business organization. Usually, the most important considerations are limiting liability, establishing the rules for operating the business and tax attributes. In the end, owners must be satisfied that the form of business entity will allow the owners, as a group, to accomplish their business goals.

Author: Attorney Thomas J. Leonard