What Type of Business Entity Best Suits Your Priorities and Goals?

For many inventors-turned-entrepreneurs, the most enjoyable part of their professional lives, and where their collective passion truly lies, is the challenge of building upon and improving established ideas and inventing revolutionary products that improve their lives and the lives of others. Unfortunately, for those same entrepreneurs, pursuing those challenges requires attention to at least one mind-numbing issue – selecting the best form of business entity for a new business.

"But why do I have to choose a business entity to run my business?!," one might ask.

Well, let's start with the basics. There are several types of business entities available and, more importantly, each type of entity offers advantages and disadvantages based on the owner's priorities and goals. It is essential that these priorities and goals are adequately addressed at the outset by selecting the most appropriate type of business entity.

The basic types of entities are sole proprietorships, corporations (both "C Corporations" and "S Corporations"), limited liability companies, limited partnerships and general partnerships. The advantages and disadvantages of these entities arise when considering several basic issues that all business owners must address. The most common, and often most important, issues that must be addressed are:

  1. Protection from personal liability.
  2. Minimization of taxes.
  3. Availability of established comprehensible legal precedent as they relate to internal governance, management, fiduciary duties, compensation and similar issues.
  4. Availability of debt and equity financing.
  5. Exit strategies.

Each of these issues, and other issues that are common to start-up businesses, can be addressed in different ways based on the form of entity selected. The business owner's personal and professional priorities and goals will dictate which issues are most important and which type of entity best addresses those important issues.

So, in the rush and excitement of starting a new business and chasing one's passion, an entrepreneur must be mindful of his or her personal and professional priorities and goals and must be certain that those priorities and goals can be achieved efficiently and fully by selecting the form of business entity that best serves those priorities and goals.

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