Five Types of Business Entities

Five Types of Business Entities

April 7, 2020

If you have a business, the type of business it is offers certain legal protections, tax benefits and other advantages. Choosing the right type among the various business entities in Miami, FL can offer you significant benefits, depending on your goals. Anyone can start a business as a sole proprietor, but for certain types of business entities, you’ll need to register with a state agency, usually the Secretary of State.

Business entities don’t need to have a bunch of employees, either—if you’re worried that your company is too small to be a corporation, you might be surprised to learn that the vast majority of American C-corporations have under 20 employees. Business size isn’t a factor in choosing the type of entity it will be.

Here’s an overview of the different types of business entities:

  • Sole proprietorships: Sole proprietorships are the “default” type of business—they’re easy to set up and end, but the owner remains personally liable for any debts they incur. That means that if someone sues your company, as a sole proprietor, you will have to pay any judgment—if your business funds can’t cover it, you’ll be required to cover those expenses out of pocket.
  • Partnerships: Partnerships generally occur when you go into business with another person or people. It’s always wise to write your business agreement down (who is responsible for which parts of the business, how profit is distributed and more) to avoid arguments in the future. As in sole proprietorships, all partners are personally responsible for any business debt.
  • Limited liability partnerships: If you want to join a business partnership but not be liable for anything beyond the capital you invested into the company, this entity type might be right for you. LLPs have at least one general partner, and a limited liability partner or partners. The limited liability partner is not personally responsible for debts beyond the capital they invested, but they also do not take part in actively running the business, or their limited liability status is threatened.
  • Limited liability companies: Owners of an LLC are called members, and although the state rules vary, you’ll generally file “articles of organization” with the state (the name and specific document type may change). LLC members are personally protected from the business’s debts.
  • Corporations: Finally, corporations are owned by shareholders, who are personally protected from the corporation’s own debts and liabilities. The shareholders elect a board of directors, who in turn appoint officers to carry out business duties. The corporation files its own tax returns and distributes profit via dividends. There are two types of corporations: S-corps and C-corps. Ask your attorney which is right for you.

Form your business entity in Miami, FL

If you’re ready to set up your business entity, having a skilled lawyer on hand is a wise decision. Call Ruben J. Padron, PA to get started—with years of experience in corporate law, we can help you choose the right type of business entity and set it up flawlessly. Call today for a consultation.

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