Forming A Business Part 1: What is a business entity?

This is the first installment of blog posts that will deal directly with forming a business. What type of entity should you choose? What are the benefits and drawbacks? How can you adequately prepare for taxes? You will find many of those answers right here on the blog.

What is a Business Entity?

Fundamentally a business entity is a fictional being created under the laws of a specific state. Think of it as a person. It owns property, earns money, pays bills, is subject to law suits, etc. Business Entities live and die but not always at the mercy of its owner. In Delaware, at times there have been more "Business Entity" citizens than there are real people!

The most common types of business entities include, Corporations (Inc.), Limited Liability Companies (LLC), Partnerships, and Sole Proprietorships. Each of these entity types will be described in greater detail in future posts. There are a variety of reasons that an entrepreneur might choose one over another, and there are in fact a variety of other entities that aren't mentioned here. Each type has benefits and draw backs, and the individual needs of the business owner need to be carefully considered before jumping right in to doing business.

The most common reason for choosing a business entity is to limit personal liability of the owners. Not all entities are created equal in this regard. A sole proprietorship doesn't provide any liability protection, but it is the cheapest to form. On the flip side, a Corporation tends to provide excellent liability protection, but it isn't right for everyone, and if you're not careful, it may not provide liability protection either! Be sure to keep a close eye on future blogs to get an idea for what entity might be right for you and your business.

Are you starting a business today?

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