Business & Commercial Law

• The Choice of a Business Entity

A number of business entities are available to the business person. The choice of a particular business entity will depend on the particular circumstances of the business and the tax considerations.

I. Corporation

A corporation is owned by stockholders, whose interest in the corporation is represented by a certificate showing the number of shares owned. Shareholders elect a board of directors, who hire officers and other employees to manage the company and provide labor. In a small corporation, a director may also be an officer and employee. The corporation provides the benefit that the shareholder’s liability for the debts of the corporation are limited to the investment in stock by the shareholder. There is no other personal liability for the shareholders, unless the shareholders of the corporation fail to observe strict corporate procedures. A disadvantage to the corporate entity is the number of procedural requirements, such as annual meetings of the directors and shareholders, and minute-keeping.

II. Limited Liability Company

A limited liability company may be formed by one or more individuals. It provides the personal liability protection of the corporation, but without the strict procedural requirements of the corporation. Limited liability companies and corporations receive different tax treatment, so the decision on whether to form a limited liability company or a corporation is often determined by tax considerations.

III. Partnership

A partnership is an association of two or more persons. It is generally formed by a partnership agreement between the partners. The advantage to a partnership is the flexibility of operation and lack of the strict procedural requirements of the corporation. The major disadvantage is that partners are personally liable for the debts of the enterprise.

IV. Other Entities

There are variations of the partnership known as limited liability partnerships and limited partnerships, which provide some protection to partners from the debts of the partnership.