By The Wyoming LLC Attorney Team
Dec 21, 2021So you’ve taken a great idea, formed a plan, created a blueprint for how to get the attention of your customers, and acquired the appropriate amount of start-up funding. Now you face your next big decision – what type of business organization is best for you? Possible organization structuring can include partnerships, corporations, sole proprietorships, and limited liability companies. There are key differences between these structures that can impact your business management, your taxes, and your day-to-day operations.
A Sole Proprietor is, basically, you. You may elect to operate your business under your own name or under a descriptive “new” name. The descriptive new name can be linked to you by the filing of a Fictitious Business name with the Secretary of State. While the Sole Proprietorship structure is the simplest and least bureaucratic form under which to operate a business, it fails to protect your personal individual assets from litigation/claims by unhappy business customers, vendors, guests, or from the debts of the business.
A “partnership” is typically an agreement between two or more people to finance and operate a business. The “creation” document is generally referred to as a Partnership Agreement. Partnerships, unlike sole proprietorships, are legally separate entities from the partners themselves. Contractual obligations are made with the entity, not the individual partners. Taxation does not occur at the entity level but rather is passed through to the partners.
With regard to liability for claims by unhappy business customers, vendors, guests, or claims against you for business debts, the partnership structure does not protect the partners from personal liability for the obligations and debts of the business. The partners share responsibility and authority regarding operating the business.
However, partners have the flexibility to define their relationship with one another and are permitted to split the ownership and profits of the partnership in the way they desire. Partners can also share equity interests – ownership interest in the partnership, which helps in building capital. As partnerships are based on a shared ownership concept, the actions of one partner can bind the whole partnership.
Corporations are legally established and basic “creation” documents generally include the Articles of Incorporation and the Bylaws. The basic attributes of a corporation and what distinguishes a corporation from other business organizations include:
Many of these attributes are considered advantages of this form of business organization. However, the multiple levels of management (shareholders, directors, and officers) will present certain administrative requirements for you in operating the business.
The basic “creation” documents for a Limited Liability Company (or “LLC”) will include the Articles of Organization and the Operating Agreement. The management structure of the entity is designated in the Operating Agreement. The owners of the LLC are called members. Liability of members of the LLC is generally limited to each member’s investment in the LLC. An exception to that protection from personal liability can arise in the event an individual member engages in unlawful actions in relation to a claim against the LLC.
Carefully consider the advantages and disadvantages of the various business organizations.
In your entrepreneurial journey, choosing the right business organization is pivotal. Whether it's a sole proprietorship, partnership, corporation, or limited liability company, each has its unique attributes and implications. Protect your interests and explore the right fit. Questions about the process? Contact us at +1 (307) 683-0983 or via our contact form for expert guidance. Your business success is our priority.