If you are in the process of starting your own business, it’s important to understand the legal requirements of this undertaking in addition to the practical ones. Certainly, you need to secure financing, finalize your business plan and secure whatever supplies you’ll need to get up and running. But, under most circumstances, you’ll also need to register your operations with the state as well.
If you’re going to operate a very small, local business and you’re going to be its only owner, you may be able to start a sole proprietorship without any official state notification. But, if you’re going to co-own your enterprise and/or you want legal protection against personal liability for your business debts and judgments, you’ll need to weigh the pros and cons of the other three major business structures available to you.
Your alternative options
If you like the idea of a very flexible managerial structure, being taxed on your personal return, co-owning your business and you’re not in need of significant personal liability protection, you may benefit from entering into a partnership. These entities are easy to form and are particularly flexible when an operation is owned by several individuals.
By contrast, if you’re looking for maximum personal liability protection, you’re looking to expand widely and rapidly, you don’t want to be taxed personally for all business earnings and losses, you don’t mind sharing managerial authority with a board of directors and you’re willing to put in extra effort at the outset to set up a rigid legal structure, forming a corporation may be the best option for you.
Finally, if you want “the best of both worlds” and you want to benefit from personal liability protection, flexible taxation options and a relatively unencumbered startup process, you may want to look into forming an LLC.
No matter which option ends up suiting your entrepreneurial vision best, it’s important to seek legal guidance sooner rather than later, as your venture will likely not be lawfully allowed to become operational until you register your company as a specific structure with the state.