A client’s guide to selecting the business entity

Over the course of the next 6 weeks we will be discussing topics relating to Selecting the Business Entity. We will begin by discussing why it is necessary to form a business entity.

Before we begin it is important to note that this guide has been prepared by Jacobson & Jacobson, PLLC for informational purposes only and does not constitute advertising, a solicitation, or legal advice. Transmission of the information contained herein is not intended to create, and receipt thereof does not constitute formation of, an attorney-client relationship. Readers should not rely upon this information for any purpose without seeking legal advice from a licensed attorney in the reader’s state. The information contained in this Guide is provided only as general information which may or may not reflect the most current legal developments; accordingly, information in this Guide is not promised or guaranteed to be correct or complete. Jacobson & Jacobson, PLLC expressly disclaims all liability in respect to actions taken or not taken based on any or all the contents of this Guide.

I.    TYPES OF BUSINESS ENTITIES

One of the most important decisions in the lifecycle of any business is the choice of the business entity for the proposed enterprise. The selection of the proper form of business entity requires a careful balancing of tax and non-tax considerations. The most common business entities formed now are limited liability companies or LLCs and corporations. Other alternative business forms, such as business trusts, registered limited liability partnerships, or professional corporations, are generally only useful in specialized situations; however, if one of these entities is selected for use attention will need to be paid to the specialized statutory regimes established in the state of incorporation. Well-known entities such as joint ventures and Subchapter S corporations are really just special cases involving the main types of business entities. For example, a joint venture may be formed and operated as a general or limited partnership or as a corporation operating under a detailed shareholders’ agreement.

It is important to remember that the choice of the business form does not itself guarantee the success of the enterprise, although the improper form may contribute to its ultimate failure. The proper form should provide a means for the participants to achieve the desired results and should not unduly constrain the freedom of the participants to establish a network of contractual relationships that suit their own unique business considerations.