Entity Formation

An entity is commonly defined as an organization established by one or more individuals for the purpose of conducting business.

Entity formation usually refers to the structure of the business, which is typically created at the state level and maintains a separate legal existence for tax purposes.

The most common of these business structures are sole proprietorships, partnerships, corporations, and limited liability companies (LLCs).

Choosing an entity type is one of the most important decisions a business owner has to take as this has significant legal and financial implications that will greatly influence its existence and operations moving forward.

The type of entity you choose dictates how your business is taxed, your exposure to risks and liabilities, what licenses and permits you need to operate, how much control you will have over the business, the amount of capital investment you can raise, among other pertinent concerns.

More importantly, the choice of a business entity should be one that is aligned with your highest goals – one that can continually support growth and expansion over time, not create obstacles that will hinder your progress.

Each type of entity carries its own distinct set of advantages and drawbacks which business owners have to carefully consider and thoroughly understand. While there is no “one size fits all” structure that will satisfy every single need, thoughtful deliberation and sound professional advice can help you arrive at what works best with your preferred business model.

Because entity formation is too important to leave to chance, Veritas Global is here to help you take that critical step in working out the legal structure is most favorable to your business, so that you can begin your new venture confidently and with ease.

Choose your business entity wisely

Before scheduling your professional consultation, it would help to learn some basic concepts about the most common types of business entities:

Sole Proprietorship is the simplest and easiest to form since it is exclusively operated by the owner. However, it is unincorporated and there is no legal separation between you and your business. While you have complete control over all business activities, you are also personally responsible for any and all legal or financial liabilities incurred.

On the other hand, Partnerships are the simplest business entity to form for two or more individuals owning a business together. Partnerships can either be Limited Partnerships(LP) or Limited Liability Partnerships(LLP). The most basic differences between the two variations are defined by the extent of liability shouldered by each of the partners and their accountability for each other’s actions.

Corporations are legal entities that are entirely separate from their owners and offers the strongest protection against taking on personal risks. However, forming a corporation is more complicated and expensive since it requires more documents for filing, extensive record-keeping, and compliance with other operational processes required by law. Corporations are also expected to pay higher taxes, as in the case of C Corporations, where profits are taxed twice—first when they come in, then again when the dividends are paid. On the other hand, S Corporations are a special type of corporation where profits are passed through to the owners’ personal income to avoid double taxation, but these entities are subject to more stringent criteria such as foreign ownership restrictions and a limit on the total number of shareholders.

Limited Liability Companies offer the most liability protection for individual business owners and is considered a viable alternative to sole proprietorships. Both gains and losses can get passed through to your personal income, thus avoiding higher corporate taxes. However, LLC owners are regarded as self-employed and are required to pay self-employment tax contributions for health care and social security.

There are several other variations of business structures available for your consideration. Whether you are deliberating on forming a standard type of business, or thinking of combining any of the above, it is still advisable that you speak to an experienced advisor who can help you choose wisely.

Seek expert advise

Entity formation is a deliberate move with lasting consequences. There are no universal solutions and you should not depend entirely on what somebody else has done. You also have to consider whether the structure you choose today will continue to meet your needs in the years to come, or has the ability to evolve with the growth that you envision in the foreseeable future.

With Veritas Global as your trusted advisor, you can be assured of professional guidance that is focused on your practical business needs. From choosing the entity that offers the most protection and benefits, to getting your new business venture up and running, we are committed to helping you reach your goals successfully and with greater confidence.