The Pros and Cons of Business Entities - Aridni
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The Pros and Cons of Business Entities

So you have decided to take the plunge into the business world in an effort to make millions, tens of millions, or just tens of dollars. How much thought have you put into structuring your business? Well, the good news is that you really shouldn’t have to sweat about it TOO much. Once you know the issues involved in the different types of entities, your decisions should be quite a bit easier.

I have written a couple articles about the different types of entities on their own and would like to present them to you in relation to the other options. These are the standard business entity types in the United States, and though many other countries have similar types of business entities, I would highly suggest that you investigate all of your options.


Sole Proprietorship

  • Pro: Easy to create
  • Pro: Freedom from many regulations
  • Pro: Pass Through Entity
  • Con: Unlimited Liability
  • Con: Hiring People can be tricky


Partnership

  • Pro: Easy to create
  • Pro: Freedom from many regulations (although not as many as Sole Proprietorship)
  • Pro: Pass Through Entity
  • Con: Unlimited Liability for all partners
  • Con: Possible politics and issues between members


Corporation

  • Pro: Limited Liability
  • Pro: Well known entity type
  • Con: Difficult to set up
  • Con: Double Taxation (not pass through)
  • Con: Many Regulations to do business
  • Con: Difficult to operate


Limited Liability Partnership (LLP)

  • Pro: Fairly easy to establish
  • Pro: Limited Liability
  • Pro: Pass through entity
  • Con: Must have at least two partners at all times
  • Con: Transferring interests is difficult


Limited Liability Company (LLC)

  • Pro: Fairly easy to establish
  • Pro: Limited Liability
  • Pro: Pass through entity
  • Pro: Freedom of operation
  • Pro: One person can own 100% interest
  • Con: Hard to issue stock for an IPO

The last two on the list are the newest entity types established to encourage more people to start businesses and other investment projects. My favorite type of entity is the LLC, and that is because of the protection it offers while still giving you an ample amount of freedom. Since it is so new, it doesn’t quite command the amount of respect or get the amount of understanding that I think it deserves.

That wraps up my post here. Keep in mind these are generalizations about the entity types and there are a few other things to consider. So talk to your lawyer or law student or somebody who knows these things better than you to make sure you look into all the issues you might possibly face. There are a couple more things as well, such as professional LLPs and LLCs (often written as PLLP or PLLC), as well as options on the corporation type (C-Corp, S-Corp, Non-profit) that you might want to consider.