There Are Many Small Business Incorporation Models, but What’s Option?

small business entity

Deciding the legal form of an enterprise is one of the first questions to be addressed by entrepreneurs.

 

 

For an entrepreneur starting up a business, one of the first legal questions he or she will encounter is what kind of business entity should be organized.

Most of the time, little consideration is paid to this question beyond the issue of how the entrepreneur will be taxed, but the fact is that the legal vehicle chosen comprises a bundle of positive and sometimes negative characteristics.

The most common forms of entity are the Standard Corporation (sometimes referred to as the C Corporation), the S Corporation, and the Limited Liability Company (also called an “LLC”).

In my review of the literature, I found a range of sources commenting on different aspects of these forms, but no one document, which compared them in an easy to review format.

As such, I provide the reader with the following chart, which I hope will be useful.  The chart does not pretend to have exhaustively hit on every point that could arise, and is not intended to be the reader’s sole basis for deciding what form of entity would be best.

What I hope it does do is assist entrepreneurs in identifying issues of concern and, hopefully, promote a more thoughtful discussion between business owners and their professionals.

As expressed in the chart, one size does not necessarily fit all, and state law can differ in material ways.

*I want to thank Louise Martin-Valiquette, Esq., based in Westchester County, New York, for reviewing and providing comments on the chart. Louise has a very active U.S.—Canada practice, represents a diverse range of U.S. based and foreign clients as outside general counsel, and is an expert on international distribution agreements.

Related articles:

Small Business Start Ups- Making It Legal 

The S-Corp or the New LLC?

Consider the Flexibility of an LLC

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