Remember the choose your own adventure story we dove into a couple weeks ago? Your first question was regarding financing, will you boot strap the company or go for outside funding? That led us into discussions about loans, angels, VCs, and pitching,
Today, I’ll ask the second question. Do you want to form an LLC or a Corporation, S-Corp, B-Corp, Partnership, Sole Proprietorship, etc? In truth, there is no easy answer to this question; and I am not qualified to nor will attempt to give any legal advice on the matter, but let’s start by explaining the options available.
Sole Proprietorship and Partnership These are the two default forms of business. If you are an individual operating a business and do not make the proactive decision to file incorporation or LLC paperwork, you’re operating as a sole proprietorship. If you are working with another person or two (or several), you’re operating as a partnership. You have full ownership of the business, but you hold all tax responsibility and legal liability as an individual or group of individuals.
LLC The next step up would be an LLC. An LLC is a company owned by an individual or group of members. LLCs have two main benefits: protection from individual liability for the company (if someone were to sue the company, they cannot attack the personal assets of the members) and flow-through taxes, meaning that the company is not taxed separately from its owners.
Corporation A corporation is its own legal entity taxed separately from its owners. This is one of the most familiar forms of incorporation; however, there are several new variations that might fit for your company, including S-Corp. (small business) and P-Corp (professional organization). Check your local business development office to see if these options are available in your state and would fit for your business.
LegalZoom also contributes its two-cents, in the form of a handy-dandy chart, here.