Determining the legal structure of one’s business is a very important decision. A number of factors must be examined when deciding how to structure a business, including the business’s financial health and the nature of activities it engages in. Below is an overview of some of the most common business entity types.
Partnership – A partnership is a business that is a separate entity from its shareholders. Partnerships must have at least one general partner who assumes total liability for the business, and they require a minimum of two partners. The income of a partnership is considered the income of its partners even if the partnership retains a portion of such income.
Limited liability partnership – A limited liability partnership is similar to a partnership, but the partners in a limited liability partnership assume some limited personal liability.
Sole proprietorship – A sole proprietorship is a business that requires no specific registration or paperwork for its formation. All that an individual must do to form such an entity is report the income and expenses of the business on a 1040 Schedule C tax form. Sole proprietorships are the easiest of all business entities to establish and dissolve.
Stock corporation - A stock corporation is a business with shareholders who receive a part of its ownership in the form of shares of stock. Shareholders also often receive investment returns in the form of dividends.
C corporation – A C corporation is an incorporated business that gives its shareholders limited liability protection. C corporations are required to have at least one shareholder, and they have total discretion regarding the amount of profits they may distribute and retain.
S corporation – An S corporation is a type of business entity that, like a C corporation, gives its shareholders limited liability protection. S corporations are required to have at least one shareholder, and they may not have more than 100 shareholders. In addition, S corporations have total discretion regarding the amount of profits they may distribute and retain.
Limited liability company – Limited liability companies can be described as a combination of a corporation and a partnership or sole proprietorship. The members of this type of business entity cannot be held liable for the company's debts or liabilities.
Business entity formation can be complicated. Therefore, we highly recommended that you consult with an experienced Michigan attorney prior to beginning the process. Thomas Keating, Esq., is a highly skilled business lawyer who has spent the past 25 years helping businesses in the greater metropolitan Detroit area and adjacent counties succeed and thrive. Whether you are contemplating starting a new business, managing an existing one, or are involved in the process of incorporation, partnership, merger, or succession, having a knowledgeable, competent business attorney onboard can help you to make choices that are profitable and secure. Please contact us for a consultation.