Entity structure: An important business formation decision

Starting a business here in Nashville or anywhere else requires the owner to make a variety of decisions. One that covers both business and legal considerations is the type of entity under which the business will operate. Three of the considerations in making this choice center on personal liability, industry and taxes.

Personal liability is a crucial issue when it comes to owning a business. Business owners want to make sure their personal assets remain protected from creditors, potential litigants and others. Limited liability companies and corporations offer the most protection from personal liability, but their legal requirements vary drastically. Many small business owners choose an LLC since the legal and paperwork requirements are not as stringent. Partnerships and sole proprietorships do not provide liability protection.

Owners are also personally liable for all of the company's taxes in partnerships and sole proprietorships. Entrepreneurs also tend to choose LLCs because of their pass through tax structure. A corporation's tax structure results in double taxation, but the taxes for an LLC pass through the company to its members. The industry in which the business will operate also plays a part in entity structure. Where these three considerations overlap could help identify the best type of entity for a certain business.

Figuring out what type of entity would work best for a particular company operating in a particular industry is not always easy. Weighing out the pros and cons will more than likely require some help. A Nashville attorney who assists individuals with business formation could help answer questions and determine the best course of action under the circumstances.

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