CHOICE OF BUSINESS ENTITY

By: Gary L. Coulter, J.D., LLM in Taxation

One of the most frequently asked questions by clients is: “What type of business entity should I use?” In other words what legal form should the business take and what legal entity will exist separate, distinct and apart from the owners and yet they still control the business? Traditionally the form was either a corporation or a partnership. However, these traditional entities now require consideration of such variations as the “C Corp” versus “S Corp”, simple partnership or limited liability partnership. Additionally we have a hybrid in the form of the limited liability company available. In fact the list of possible entities can be continued with variation almost ad infinitum.

Consequently the answer is not always easy and one must consider a myriad of different factors. Some of these include the type of business, age of the business, is the business in a growth or stable mode, the potential for liability and the extent of that liability (is the owner personally liable?), ability to obtain financing, raise capital, sell the business and remove old or admit new owners to mention some of the many considerations. Of course one must also consider tax factors including how the business and owners will be taxed on its income, who will be paying the taxes, will the company lose money initially and what is the potential for fringe benefits including retirement accounts. Eventually you must consider every aspect and fact concerning your business.

The information available to the Tax-Business Lawyer on all of these considerations is prolific including among other things courses, seminars and treatises. Tax and business lawyers spend years studying these factors and opining to their clients on a direction to take. However, armed with all this knowledge, their recommendation must still depend on you communicating to them your goals, present business circumstances and prospects.

My objective here is to give you an overview of the most popular business entities in use today. In ensuing articles we will break the Choice of Business Entities down into more detail and discuss some of the more subtle issues. However, don’t be misled by the brevity and, hopefully, conciseness of my discussion. If you are considering forming or changing a business entity, gather your business facts and then consult with a qualified Tax-Business Attorney.