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What form should your business adopt?

One of the most important decisions you will make as a business owner is the legal form your business adopts. The form of your organization can range from simple, beginning with a sole proprietorship, where you are the sole owner and which does not need to be incorporated, on up to a corporation, partnership or limited liability company, which may have a very complex, multi-level structure.

The range of organizational forms creates different levels of protection from liability and is somewhat inversely related to the complexity of the entity choice. If you choose to become a sole proprietorship, you may have little to do to create your formal structure, but it leaves you and your personal assets at risk to the liabilities of the business.

A more complex structure, such as a corporation, LLC or a partnership, often with a separate corporate entity taking the role of general partner, can greatly reduce your and other owners personal risk to the liabilities of the business.

These forms are much more flexible, and offer owner an almost unlimited set of choices in how to organize the business. This level of complexity can be very powerful and help you with your business as it grows, but it is best if you obtain sophisticated legal advice when drawing up such organizational plans.

With a complex structure, you may be better able to manage growth and employees, and a lawyer can help you put together these types of entities and can discuss your specific needs during the formation process.

They can ensure that your entity selection is right for your business and that it has the governing documents, such as the corporate bylaws and charter, the partnership agreement or LLC operating agreement tailored to facilitate the smooth operation of that business.

Source: sba.gov, "Choose Your Business Structure," site accessed January 2016

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