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Selecting a Business Entity Type

If you are thinking of starting a business, you have many important decisions to make. One of the most important of these is choosing your business entity.

There are a number of different types of business entities, and each has its own set of advantages and disadvantages.

The most common types of business entities are:

  • Sole proprietorships
  • Partnerships
  • “C” corporations
  • “S” corporations
  • Limited liability companies (LLCs)

In choosing your type of business entity, you must ask yourself the following questions:

  • Do you want to maintain total control over your business, or do you want to have partners?
  • If you choose to have partners, will they all be treated the same?
  • Do you plan on providing your products or services to the local community, or are your products or services going to be marketed nationally or even internationally?
  • Do you want people to invest in your business and own a part of it?

You must also consider the legal implications associated with each business entity type.

  • Do you wish to have yourself protected from personal liability, or is your business generally one with little or no liability risk?
  • Are you planning on employing a large number of people?

The Internal Revenue Service (IRS) treats various business entities differently according to the applicable tax laws. Also, depending on the type of business entity you choose, you may be filing more than one tax return each year.

When starting a business, it is important that you understand the advantages and disadvantages of each type of business entity. You must carefully decide upon the business entity that best suits your objectives.

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