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What to think about when selecting an entity for your business

One of the biggest decisions you'll make in starting a business is choosing a legal entity. Will your business be a partnership? Sole proprietorship? Limited liability company (LLC)? Limited liability partnership? S-corporation? C-corporation?

It's easy to get overwhelmed by this confusing jumble of alphabet soup. Yet the decision you make will affect your business for a long time to come. It's important to consider not only the immediate needs of your business, but also your long-term vision, giving careful thought to these five factors:

1. Ownership

Who will own the business, now and in the future? Does the business center on you, personally, or is there room for expansion? Will it become a family business? Do you want it to outlast your lifetime?

Partnerships, LLCs and corporations allow for multiple owners. Sole proprietorships, by definition, have only one owner.

2. Financing

In many ways, financing and ownership are related when it comes to business organizations. In corporations and LLCs, for example, the investors (shareholders or members) own a piece of the business. These entities will give you greater flexibility when it comes to pursuing financing arrangements.

3. Complexity

Starting a business isn't a "one and done" deal. All business entities require upkeep, and some involve more time and effort than others - both at the beginning and throughout the life of the business. A sole proprietorship is the simplest form of business, for example, while corporations are among the most complex.

Simpler entities - such as LLCs, partnerships and sole proprietorships - often make sense for small businesses seeking a manageable form of organization. For entrepreneurs with a large-scale vision, however, it may be worth the time and effort to choose a more complex entity if it will better suit your objectives down the road.

4. Legal risks

Certain business forms - include LLCs, LLPs and corporations - provide a valuable layer of protection when it comes to legal liability. They shield your personal assets from business liabilities and vice-versa.

However, for this protection to be effective, you must observe certain technicalities in forming and running your business. You must also maintain clear separation between your business and your personal assets.

5. Taxes

Certain business organizations are "disregarded entities" for purposes of federal income tax. This means you don't need to file separate tax returns for the business. It's important to consult with an attorney about the tax implications of each business entity you're considering.

Learn more about what goes into starting a business - and how the right attorney can help.

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Robert Kaufman has been selected as a 2013 Top Rated Lawyer in ‘Commercial Litigation’ as will be published in the May issue of The American Lawyer & Corporate Counsel magazine.Alex Kaufman has been selected as a 2013 Top Rated Lawyer in ‘Commercial Litigation’ as will be published in the December issue of The American Lawyer & Corporate Counsel magazine.

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