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Which Entity to Choose

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Starting a new business is an exciting time during which an entrepreneur must make many important decisions. One of the first issues an entrepreneur must address is how he or she will conduct the new business. When I am asked to prepare the "documents" to form a business, the entrepreneur has preconceived ideas of which type of entity is best for his or her business. However, it is important for the entrepreneur to consider the attributes of the alternative business organizations through which the business may be conducted to ensure that he or she is making the right choice.

In determining which entity is right for the entrepreneur's business, he or she must consider which form: (1) provides the best protection against potential liabilities of the new business; (2) creates the least tax burden or best meets the entrepreneur's tax objectives; (3) is best situated to obtain the capitalization required for the new business; and (4) is most appropriate for the desired management structure. Most new businesses are formed as limited liability companies ("LLCs"), S corporations, or C corporations, all of which limit the owners' liability for the new business's debts or other obligations. Below is a brief description of some of the characteristics and restrictions associated with organizing a new business in North Carolina as a LLC, S corporation, and C corporation:

Limited Liability Company ("LLC")

S corporation

C corporation

The general descriptions of the attributes of corporations and LLCs set forth above are not exhaustive and are subject to certain exceptions. Also, some entrepreneurs may find that their businesses will be better suited if organized as a different type of business organization, such as a sole proprietorship, partnership, or a limited partnership. Accordingly, in choosing the proper entity, the entrepreneur may be well-served in consulting his or her attorney and/or accountant to discuss which business form is best for the new business.

The information contained in this site is provided as a public service for informational purposes only and is not intended to be a comprehensive statement of the law or, in particular, to contain legal advice. Laws vary from state to state and are subject to change, which could affect the information available on this site. If you have questions regarding any information found on this site, you should consult an attorney who can investigate the particular circumstances of your situation. Persons receiving information found on this site should not act on this information without receiving professional legal counsel. Use of and access to this web site does not create an attorney client relationship between Harris Law Firm, PLC and the user or browser. The opinions expressed at or through this site are the opinions of the individual author and may not reflect the opinions of the firm or any individual attorney.
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