Selecting the best form of legal organization for your business can have a significant impact on the success of the business.
In this first part of our discussion on business organizations, we broadly discuss two common organizations: sole proprietorships and partnerships.
Keep an eye on our blog for part two for a discussion on corporations.
Sole proprietorships are generally the simplest form of business organization, with one owner who makes management decisions. This entity generally has no particular income tax consequences – income and expenses of the business are reported on the owner’s personal income tax return. The owner is generally responsible for all of the obligations of the business and is not afforded any liability protection.
A partnership is generally an association of two or more persons to carry on a business for profit as co-owners. A partnership agreement may be advisable to outline the rights and responsibilities of the partners regarding each other and with third-parties. As to taxation, partnerships are generally not taxable entities, and instead each partners’ share of income or loss flows through to each partner (subject to certain limitations).
Partnerships generally do not offer liability protection. Of note, there are different types of partnerships, including limited partnerships and limited liability partnerships, which offer additional tax and liability protection considerations.
The above is, of course, a very broad overview, and there may be additional factors impacting your decision making. If you are starting a new business or have questions about the structure of your current business, it may be time to schedule a confidential consultation with the team at Bender, Levi, Larson & Associates S.C. We can work with you to evaluate your unique situation and provide counseling as to the best approach for you.