The choices are: sole proprietorship, general partnership, limited liability company (LLC), or a corporation. You will want to consider:

• Personal liability protection
• How profits are taxed
• The opportunity to take advantage of fringe benefits
• Ease in raising capital

Sole proprietorships and general partnerships are simple and inexpensive. However, owners may be personally liable for the debts of these businesses.

Forming a corporation or an LLC is more complicated and costly, but it is often worth it. These organizations limit the owners’ personal liability for business debts, and they may be able to provide tax deductible employee benefits to owners and employees. LLCs are more flexible in allocating profits and management duties than corporations and setting them up is less complicated.

Taxes are another consideration. In most businesses, profits are taxed only once. However, if you choose a C-Corporation, your profits could be taxed once as income to the corporation and a second time as dividends to the shareholders.

Your initial choice of a business form does not have to be permanent. You can start out as one type and convert to another as your business grows and changes.

To create an LLC or corporation, documents, called Articles, are filed with the Secretary of State. Only basic information is included, such as the name, principal office address, agent, and names of initial members. Your attorney can prepare and file the documents.

An LLC should have a written operating agreement covering things like:

• Do members vote according to their percentage interests, or does each have one vote?
• Are owners expected to make additional capital contributions if needed?
• How much should owners be paid when they leave the business?
• May an owner sell an interest to an outsider?

Once your business is registered with the Secretary of State, you will need federal and state identification numbers. You may need state or local licenses and permits. If you will have employees, you will need worker’s compensation and unemployment insurance. A retail sales business will need a sales and use tax permit.

At Kraft, Walser, Hettig & Honsey, PLLP, we can advise you on which business form best fits your needs. We will guide you through the creation or restructuring of your business and make sure you have met all of the legal requirements.