Protecting a great idea almost often includes incorporating your business idea with the state. Before you incorporate a business, you will need to know which business entity to choose. The general options include: the limited liability company, the partnership, the limited partnership, the C-corporation or the S-corporation. Also, remember that the limited liability company can be taxed as an S-corporation while affording the legal protections that other limited liability companies have. Choosing the right business entity is a tough decision, but knowing the advantages and disadvantages of each entity type can make the choice easier.

First, traditional partnerships generally are disfavored because each partner has unlimited liability with respect to all of the other partner’s actions. Limited partnerships are a better option, but should be used with caution, as there still needs to be a general partner who bears all of the responsibility of the partnership on their shoulders. Limited partners enjoy limited liability, but they do not enjoy any ability to contract partnership actions. If a limited partner tries to manage a limited partnership, then they may be converted into a general partner and therefore lose their “limited liability” protection. These entities are often used in cases where a person is seeking investors for their business and/or where there is some sort of asset protection plan (“family limited partnerships”).

Limited liability companies (“LLC”) and corporations are used more frequently for new entities than partnerships. Deciding between whether to use a limited liability company over a corporation depends on a number of factors. One factor is whether your company will go public (does the business plan include selling shares on the public stock market). If so, then you must use a C-corporation since that is the only entity that allows this action. If you have a small family business, an LLC may be more favorable over the corporation as there are fewer formalities that will have to be followed overall. Choosing a business entity is an important task and depends on the purpose of the business as well as other factors on a case-by-case basis.

Contact the Attorneys of The Noble Law Firm, P.A. to assist you with your business law needs.




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