What exactly is “limited liability” and why is it important? If you run your business as a sole proprietorship, from a legal perspective, there is no distinction between you and your business. You are the sole proprietor and you are essentially functioning as a business. If someone wants to sue your business, they will be…
Read moreWhat does it mean to “start a business?” Starting a business is different from forming a business entity. In the U.S., starting a business can be as simple as marketing or selling products or services. Forming a business entity, on the other hand, refers to registering a legal entity used to conduct business–a company–with the…
Read moreA sole proprietorship is a single individual or couple doing business alone. How It’s Formed: If there is just one owner of the business, a sole proprietorship is automatically created when they start doing business. The owner doesn’t need to file or register anything to set up a sole proprietorship. How It’s Taxed: Sole proprietors…
Read moreA general partnership is a relationship between two or more people to do business together. Each person contributes money, property, labor, or skill, and shares in the profits and losses of the business. How it’s Formed: A partnership is automatically created when one or more people/companies start conducting business. A contract can be used, but…
Read moreA limited partnership (“LP”) is one or more general partners and one or more limited partners. The general partners manage the business and share in profits and losses. The limited partners share in the profits, but losses are limited to their investment in the partnership. Limited partners are usually not involved in the day to…
Read moreA limited liability partnership (“LLP”) is similar to a general partnership, but each partner’s liability is limited to the amount they each contribute to the business. Usually LLPs are used by legal and financial professionals–law firms, accountants, etc. How it’s Formed: The partners form the partnership by filing a certificate with the state’s corporate filing…
Read moreA limited liability company (“LLC”) is a formal business entity made up of members (members can be individual people, corporations, other LLCs, or foreign entities) conducting business. How it’s Formed: The business owners form the LLC by filing an organization document with the state’s corporate filing office, usually the Secretary of State. Some states call…
Read moreA corporation is a legal entity that is distinct from its owners. How it’s Formed: The business owners form the corporation by filing a certificate of incorporation (also called a “charter”) with the state’s corporate filing office, usually the Secretary of State. How it’s Taxed: C-corporations are taxed at the entity level when income is…
Read moreBusiness owners should make sure the name they want to use for the business is available before doing business under that name. This is different from registering the business name as a trademark. Registering the business name as a trademark does not entitle the owner to use the name for the business. Business owners can…
Read moreOnce you have decided on which business entity to form, you will need to file business formation documents with the appropriate state or territory office. Many business owners choose to file their business formation documents in states like Delaware, Wyoming, or New York because these states have well-settled and favorable business laws that make it…
Read moreOnce all of the documents have been filed and the business is properly registered, it is important to set up the internal corporate structure that will keep the business separate from your personal assets, activities, and interests. If the business entity is determined to be an “alter ego” of the individual business owner, meaning that…
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