Which Type of Business Organization is Best?

If you've never started a business before—relax. Forming a corporation is easier than you might think. As a matter of fact, if you can put your name and address on a form, you can incorporate a business. If you're starting a business for the first time, you're probably a little anxious, maybe afraid you'll do something wrong or leave something out, but don't worry, I've worked hard to make this easy for you. You can't do anything wrong. So please, sit back, relax, and spend a couple of hours with me. We'll have your business incorporated in no time. And by the way, thank you for choosing this book.

If you're unsure whether forming a corporation is the best thing for your business, or if you're not exactly sure what a corporation is, this chapter will give you an overview of the most common types of business organizations—the sole proprietorship; the partnership; the corporation; and the newest type of business organization, the limited liability company, or LLC as it is more commonly known.

If you're sure that incorporating is right for you, skip this section and go on to
Section 2 where you'll learn the incorporating process.

If, after reading the entire how-to guide, the Frequently Asked Questions, and the Glossary of Terms, you have a question, we'll be glad to help. Please note that there are no lawyers on our staff, and we are unable to give legal or tax advice or do any consulting. We can only clarify subjects or procedures discussed in this guide.

Types of Business Organization:

One of the first executive decisions you'll make for your new business is deciding how to organize it. Basically, there are four ways to organize a business.

•   The sole proprietorship
•   The partnership
•   The corporation
•   The limited liability company (LLC)

The choice you make here is important because it will determine what your business can and cannot legally do, what will happen if someone sues you, how your business is taxed and things like that.

You see, a business only exists because a group of lawmakers, a legislature, passed a special set of laws that governs its formation and operation, kind of like
“the rules of the game.” The type of business organization that you choose determines the set of laws that govern it, and therefore how it is formed, how it will operate, and what rights it will have. A corporation only exists because a state legislature passed a special set of laws that governs corporations. These laws spell out what a person must do to form a corporation, what the corporation can and cannot do, and how the corporation will be taxed.

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