Creating a new business is a brave and exciting part of a person’s life. However, the process of doing so can often be overwhelming and difficult. Sometimes, a person may not know where to start. When getting ready to launch a new business, it is important to think of what type of business structure best serves what you are trying to accomplish. In the state of New York, there are several different ways to organize a business. Each type of business structure has its own components and advantages.
Types of Business Structures
In the state of New York, the different types of business structures available to people starting their business are as follows:
- Sole Proprietorship: One of the simplest and most popular forms of businesses. Under this structure, the business is essentially an extension of the owner. This means their taxes are reported on their own individual tax return. In addition to this, sole proprietors are in charge of their business and get to make their own decisions. It is important to know that it is easy to convert a sole proprietorship into another type of business structure over time.
- General Partnership: This is when two or more partners share a business. Owners may be individuals, other partnerships, corporations, or associations. Each owner has unlimited personal liability and full authority to conduct business. This means each partner is liable for the business decisions of their other partners.
- Corporation: the two categories of corporations in New York are C-Corps and S-Corps. The C-corp is the most common, as it is considered a unique legal entity that is separate from its owners. The owners are shareholders in the corporation and usually elect a board of directors to oversee the major decisions.
- Limited Liability Company (LLC): This offers a hybrid business structure by providing the limited liability features of a corporation with the tax benefits and flexibility of a partnership. LLC’s can report their income on their individual tax returns or follow a corporate tax structure. This can be easier to form than a corporation but harder than a general partnership.
- Limited Partnership: Most partners in this business structure have limited liability in addition to limited input regarding the company’s management decisions. This type of structure must have one or more general or limited partners. The general partners have unlimited personal liability for the debts and obligations while limited partners do not.
Factors to Consider
When creating a business, it is crucial to understand what type of structure best suits your goals. No one legal structure is best for every business. In making this choice, it is important to consider several different factors. This can include:
- Your vision for the business (size, nature, etc.)
- Number of co-workers
- Relationship between owners and management
- Seeking outside investors
- Level of structure and formality
- Allotted expenses to form and maintain the business
- Tax implications
- The expected profit of the business
- If you need to access business cash for personal use
Contact our Firm
Zimmet Law Group, P.C. is an experienced team of attorneys guiding clients through matters of estate planning and administration, divorce and family law, real estate, commercial litigation, business law, bankruptcy, and landlord-tenant law. If you require the services of an effective New York City attorney, contact our firm today to schedule a consultation.
