TYPE OF ENTITY TO USE

Type of Entity to Use
Attorney in Fayetteville, AR

Serving Fayetteville, Springdale, Rogers, Bentonville, Fort Smith, Joplin, Tulsa, & Springfield

One of the first decisions facing a business is choosing the type of business entity to create. The type of business organization is an essential consideration in the context of taxes and preventing exposure to personal liability. When selecting a business organization structure, business owners should weigh several factors, including: the size of the business, the activities of the business, the business’s profitability, and the business’s insurance. An experienced business attorney can explain the relevant considerations and consequences in order to choose the proper type of business organization. The three main categories of for-profit business entities are: 
  • Incorporated entities
    • C corporations and S corporations are the common forms of incorporated businesses. 
  • Unincorporated entities
    • Unincorporated businesses include sole proprietorships and partnerships. 
  • Limited liability companies (LLCs)
    • A limited liability company (LLC), on the other hand, is a hybrid of the unincorporated and incorporated form, blending some of the benefits of each.
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Emerging Entities

For clients forming a professional services business such as: 
  • Doctors
  • Dentists 
  • Lawyers 
  • Accountants
  • Engineers and other professionally licensed individuals
Limited Liability Partnerships (LLP’s), Professional Limited Liability Partnerships (PLLP), Professional Limited Liability Companies (PLLC) and other professional associations may be the entity of choice. These entities have special membership requirements. Contact Rick Woods to assess your companies’ need for one of these emerging entities.

Choosing A Business Structure

Whether your business is best suited to operate as a sole proprietorship, a general or limited partnership, a corporation, or a limited liability company depends on various factors. You should remember that as your business develops, its needs may change.
  • SOLE PROPRIETORSHIP

    As the name suggests, a sole proprietorship is an unincorporated business that has a single owner. It is the easiest type of business to form because the only paperwork filed is a fictitious name statement with the county clerk. The drawbacks are that the owner must report the business’s income or loss on his or her own taxes, and the owner is liable for the business’s debts and other legal liabilities. Similarly, the assets of the business can be seized to satisfy the owner’s personal liabilities. LLCs and corporations offer more protection against liability, both for the business and for the owner.


  • PARTNERSHIPS

    Partnerships are similar to sole proprietorships in many aspects, but they have more than one owner. Typically, no paperwork needs to be filed with the government to form a partnership, but partners will usually want to draft a written agreement to lay out the structure of the business and the partners’ rights and duties with respect to each other. When preparing the partnership agreement, it is vital that the partners consider and decide how to deal with such potential issues as distributing profits and debts, resolving disagreements between them, and continuing the business if a partner dies or leaves the partnership.


  • CORPORATIONS

    The law treats corporations as separate entities from the individuals who own the corporation, called stockholders or shareholders. The biggest advantage of operating a business in the form of a corporation is that owners are generally protected from personal responsibility for the corporation’s liabilities. Each state has a set of statutory law governing corporation formation, governance, conducting business in the state, maintaining local presence and termination. A corporation may elect to be treated as a tax pass through structure thus avoiding double taxes in many instances.


  • LIMITED LIABILITY COMPANIES (LLC)

    The limited liability company (LLC) affords business owners the most important advantages of both corporations and unincorporated businesses: protection from liability together with flexibility and relatively little regulation. The LLC is considered a separate entity from its owners, called “members,” so, like corporations, the members are generally not personally liable for any of the company’s debts or torts. One advantage that LLCs have over general corporations is that they avoid the problem of double taxation. The owners report profits and losses of the LLC on their personal tax returns, as do owners of unincorporated businesses. LLCs do not pay federal income taxes, but some states charge their own taxes on LLCs.


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