What is the best legal entity to choose for your startup?

What is the best legal entity to choose for your startup?

On Behalf of | Oct 4, 2021 | Corporate Law |

If you’re forming a startup in North Carolina, you’ll need to choose a legal entity for your business. Matching up your company with the appropriate structure should be easier to get done when you understand more about the following options:

Sole proprietorship

If you’re operating the business by yourself and all of the company’s expenses are paid by you, using a sole proprietorship as your business structure is probably the best choice. Keeping track of your income and expenses is essential when you go with this option as you’ll need to keep them separate from your personal data when tax time comes.

Partnership

Teaming up with one or more partners means you’ll likely form a partnership when choosing the appropriate legal entity for your business. Performing this type of business typically includes creating a formal partnership agreement and having each partner sign it. Doing so will help ensure each partner is held responsible for operations. Defining the role each partner will play along with their liabilities and responsibilities should help avoid confusion.

Limited partnership

Forming a limited partnership may be completed when you or other individuals aren’t interested in active operations as general partners. Choosing this option allows individuals who only want to invest financially in the business the recognition of having a limited partnership interest. If the company doesn’t do well, a limited partner will only lose their original investment.

Limited liability company

Choosing to use a limited liability company (LLC) is done if you want a more formal legal structure offering limited protection from liability. Using this business entity separates your company’s financial obligations from your personal assets.

Corporation

Utilizing the corporate entity means you’ll have to choose between two options. Examining the difference between a C Corporation and S Corporation can help you make this choice. Choosing a C Corporation business entity is best if you’re still in the early stages of your startup and have hopes of receiving venture capital. Forming an S Corporation is usually best if you want to take advantage of the federal Internal Revenue Code and Subchapter S, allowing you to avoid corporate income taxation.

Examining each option and matching up the one with similar company characteristics should allow you to make the best choice for your business.