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Set Up the Legal Form of Your Business

Once you’ve assembled your team of professionals, it is time to enlist their help and make some important decisions. Before you put together your business plan, before you start applying for loans, you need to choose the legal form of your business.

The legal form of your business determines the way the IRS and the legal system see you and your business. Your choice will have tax and liability repercussions. In most states, you have five main options: sole proprietorship, partnership (general or limited), limited liability company, C corporation, or subchapter S corporation.

A sole proprietorship is owned an operated by a single individual (or that individual and a spouse). The business is financed by that individual or by loans in the individual’s name. Profits and losses are treated as personal income. The individual is personally responsible for paying any debts and liabilities against the business with his personal assets as well as those of the business.