What are the most common legal entities used for operating a business? How are these entities treated similarly and differently for state law purposes?

Question

Duarte

Business

17 February, 02:20

What are the most common legal entities used for operating a business? How are these entities treated similarly and differently for state law purposes?

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August Maldonado · Answer 1

The correct answer is:

Corporations, limited liability companies (LLCs), general and limited partnerships, and sole proprietorships.

These entities differ in terms of the formalities that must be observed to create them, the legal rights and responsibilities conferred on them and their owners, and the tax rules that determine how they and their owners will be taxed.

Explanation:

There are several important reasons, when opening a business in the US, to run the business under a limited liability company, corporation or other form of legal entity that has a separate legal existence to the business owner. The main reason for operating the business under a limited liability company or corporation is that it protects the personal assets of the business owner from the liabilities arising from the operation of the business.

One of the first decisions you will have to make as a business owner is the way the company should be structured. There is no single legal structure that is considered the best for all small businesses. The decision to start as a sole proprietor or the choice of one of the most complex organizational structures, such as a partnership, corporation or Limited Liability Company (LLC) depends on several

factors, including those listed below.

When choosing a type of entity, you should consider the following:

Your vision about the size and nature of your company Number of co-owners of the company Relationship between owners and management Degree in which you will look for external investors Level of "structure" and formality for which you are prepared as a manager Expenses, in time and money, for the creation and maintenance of the entity commercial Vulnerability of the company to face demands and other obligations Tax implications of the different ownership structures Expected profits (or losses) of the company Whether or not you will have to reinvest profits in the business The need to access cash from the company for its use personal