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There are many issues to address when beginning a business. One important step in the process of forming a business is to decide on the type or legal status for the entity. The type of business entity you choose for your company impacts numerous business areas, including taxes, ownership, daily operations, employment contracts, and raising capital, among other things. Our attorneys can help you analyze your needs and choose the business entity that best suits your goals and needs.
Many companies choose to incorporate for a variety of reasons. However, some business owners also choose other types of business entities because a corporation does not meet their company’s needs. As experienced Nebraska corporation formation attorneys, the attorneys of Berkshire & Burmeister thoroughly understand each business entity. We can discuss the pros and cons of various option of business entities to help you choose the best entity for your company.
Examples of common business entities used routinely by Nebraska and Iowa companies include:
A sole proprietorship is the easiest and least costly type of business entity to form. Anyone who goes into business for themselves is a sole proprietor, by default. The owner personally bears all profits and losses of the company and the owner bears personal liability for all company debts and liabilities.
A partnership is a company formed by two or more individuals. The partnership agreement designates the roles and interests of each partner. There are several different types of partnerships, including General Partnerships and Limited Liability Partnerships.
Profits and losses pass through the partnership to each partner based on the terms of the partnership agreement. Partners have various degrees of personal liability, depending on the type of partnership and the partner’s role in the partnership. Doctors, lawyers, and other professionals often choose a partnership as the entity for their firms.
A Limited Liability Company (LLC) is organized under state law. Therefore, the laws related to LLCs may differ slightly by state. In most cases, an LLC combines many of the best features of a sole proprietorship, partnership, and corporation into a less formal business entity.
An LLC’s owners are members of the LLC. You can form an LLC with one member or multiple members. LLCs are taxed as sole proprietorships (one member) or partnerships (multiple members), unless the LLC elects to be taxed as a corporation. The members of an LLC enjoy limited personal liability for company debts and liabilities.
Corporations are the most formal type of business entity you can choose, but they also provide the highest level of personal liability protection. Shareholders are not personally liable for the debts and obligations of the company. Board members and officers are typically not personally liable either, except in cases of fraud or other wrongdoing. Using a corporation for a small business might be costly and time-consuming. It also results in double taxation for the owner because corporations are taxed as separate entities before paying dividends to shareholders, who must pay personal taxes on those dividends. Alternatives exist in some cases, such as s-corp elections which may be beneficial and negate or offset some of the disadvantages. However, these rules are highly technical and require a knowledgeable advocate to advise you of the options.
The attorneys of Berkshire & Burmeister are here to help. Contact our office by calling 402-827-7000 to speak with an attorney. We handle all aspects of corporate formation and business formation for our clients, so they can focus on other important matters related to beginning a business.