Types of Business Entities


Whether you’re just starting out or running a successful company one of the most crucial decisions you’ll have to make is how your business is structured. The formalization of a company requires investment and time, but also comes with advantages such as liability protection, and tax savings. The business entity you choose impacts everything from your legal exposure to government regulations. It’s best to carefully consider all options and speak to an accountant and a lawyer for business for specific help.

The most popular types of business entities are sole proprietorships, general partnerships and limited liability partnerships. Each has its own advantages and disadvantages. Sole proprietorships are the most basic type of business entity. They are created automatically along with your business, and do not usually require formal registration. However, they do have their highs and lows. You could be held 100% liable for any legal action taken against your company and must declare profits on your personal tax return. On the other hand, you get to keep all profits or shut down your business at your discretion.

An LLC is a recent type of business entity which divides your assets from those of your company. It provides liability protection and also allows flexibility in the way the company is managed. You can choose to tax it as a corporation or partnership depending on your specific needs. A holding company, or parent company, is a firm that holds shares of a prescribed amount in a different company or has control over the composition of its board of directors.