Business Transactions

Alphabet Soup of Business Entity Forms. Part Two. Corporations and Limited Liability Companies.

This is the second part of a two-part blog posting on business entity forms. In Part One, I discuss sole proprietorships and general partnerships. In this Part Two, I discuss corporations and limited liability companies.

While it’s possible to form a sole proprietorship or general partnership without taking any formal action, organizing your company as a corporation or a limited liability company (“LLC”) requires filing certain documents with your state – normally with the office of the Secretary of State. You file articles of corporation to organize a corporation and articles of organization to organize an LLC. Filing requirements for both are fairly simple, normally requiring little more than the address, contact person, number of shares (for a corporation), and business purpose. Specific requirements vary by state.

The advantage that corporations and LLCs offer over sole proprietorships and general partnerships is limited liability.

Alphabet Soup of Business Entity Forms. Part One. Sole Proprietorships and Partnerships.

There are many ways in which to organize your business. In a previous posting, I discussed the factors to consider when choosing the best way to organize your business. They include your need for limited liability, your tax situation, how you want to manage your company, and the amount of paperwork you’re prepared to tolerate.

Here’s a description of some of the business entity forms you can choose:

Sole Proprietorship is the simplest form of business organization. As the name implies, a sole proprietorship consists of one person operating a business. Generally, no formal action or government filing is necessary before you can become a sole proprietorship. However, if operating the business under a name other than your own, you may need to file a dba (doing business as) or fictitious name statement with your local government.

A Partnership is comprised of two or more people operating a business. There are several different kinds of partnerships including the following: