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  • Writer's pictureNicole Bernier, Esq.

Starting a Business? Let's Talk Entities!




Hello future business leader! Considering starting your own business? Great! You might be wondering, "What type of business entity should I set up?" or even, "What's a business entity anyway?" You're in the right place for answers!


✨ Understanding Business Entities ✨

A business entity is like a legally recognized 'person' for your business. It's separate from you, the owner, and has its own identity under the law. Imagine it's like setting up a new identity. This identity can obtain its own tax ID (EIN), open bank accounts, own assets, and enter into contracts. To officially establish this entity, you need to file a 'certificate' in your state. And just like that, your business entity is born!


Remember, keeping up with certain other formalities is key to maintaining your business entity's legal status.


Let's review some features of the two most common business entities.


🌟 LLCs vs. Corporations: What's the Difference? 🌟

Most new business owners choose between two popular entities: Limited Liability Companies (LLCs) and corporations. (Or 'Sole Proprietorships' but we'll cover that in another post!)

  • LLCs: Flexible & Friendly

    • Owners are called 'members'.

    • Can be managed by members or appointed managers.

    • Single-member LLCs offer great liability protection, especially compared to sole proprietorships.

    • Generally simpler and cheaper to set up and maintain than corporations.

  • Corporations: Formal & Strategic

    • Owners are 'shareholders'.

    • Managed by directors and officers.

    • Requires a board of directors and more internal formalities.

    • Ideal for businesses that plan to scale up significantly or go public.


💰 Tax Talk: Simplified 💰

Another reason for choosing a certain business entity is taxes. Taxes might sound daunting, but here's a quick breakdown:

  • Corporations: They face 'double taxation'. First, the corporation pays taxes on profits. Then, shareholders pay taxes on dividends received. Yep, that means the corporation files tax returns too!

  • LLCs: These are considered 'pass-through' entities, meaning the LLC itself doesn't file tax returns and isn't taxed. Profits pass through to the owners, who then pay taxes on their individual returns.

Remember, this is super simplified! Always consult a tax expert for detailed advice tailored to your situation.


🌈 Choosing Your Business Entity: It's Your Call! 🌈

Each entity has its perks and quirks. Think about your business goals, scale, and how much paperwork and spending you're comfortable with. Whether it's the flexible LLC or the structured corporation, choose the one that aligns with your business vision.


Excited about your business journey? You should be! Understanding the basics of business entities is a giant leap in your entrepreneurial adventure. Here's to your entrepreneurial success!


Feel free to reach out to me if you have any questions about starting your own business!





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