Starting a business can be a complicated process and if you don’t get things set up correctly from the beginning, you could set yourself up for more challenges. Choosing the right type of business entity is an essential step for a new business’s success. While an experienced New York business formation attorney can help you decide on which entity will benefit your business the most, it’s still helpful to understand your options. Here are the types of entities that most business owners should consider.

new york business entity

The 5 Main Types of Business Entities to Consider

There are five main types of business entities that New York business owners should know about when they’re still in the planning stages. Here’s what you need to know about each one.

1. Sole Proprietorship

Sole proprietorships are companies owned and operated by a single individual. This is the default for many businesses and lets you open your doors and start providing services without having to form a separate and unique company. Sole proprietorships are a great choice for low-risk businesses. This may include self-published authors, freelance graphic designers, crafters selling on Etsy, and more.

These companies can be risky since you’re not separating your business assets from your personal assets. 

2. Limited Liability Company (LLC)

LLCs are a separate entity that protects your personal assets in the event that the business struggles or you default on a business loan. The only property available to creditors to settle your debts in most cases will be the assets held by the LLC. Your personal assets will also typically be safe from seizure in the event of lawsuit against your business. LLCs can be great for individuals but can also work for companies with more than one owner or partner.

3. Partnership

Partnerships are a great option for people starting a business with another individual. There are two main types of partnerships: limited partnerships (LPs) and limited liability partnerships (LLPs). LPs assign one partner with unlimited liability for the business and give other partners limited liability and limited control of the company. LLPs protect all partners’ personal assets from liability should the business fail.

4. Corporation

Corporations provide full legal separation for business owners. They’re treated as a separate entity, meaning the business owners are not personally liable for the company’s performance or failures. But that separation comes with an increased tax liability. Profits from the corporation are taxed once for the business and again for the shareholders who receive them. You’ll pay more in taxes in the long run with a corporation.

5. Cooperative (Co-op)

Co-ops are businesses that exist with the sole purpose of benefiting the members of the co-op. Members effectively invest in the business and become partial owners of the company. Decisions are made by general vote and a share of the profits are typically dispersed to members each year.

Your New York Business Formation Attorney Can Help

Choosing the right type of business entity is an essential part of starting a new company. And while you can choose an entity on your own, you don’t have to. Working with a New York business formation attorney can take some of the stress out of the process and make it easier for you to choose the right type of business for your long-term goals. Contact us today to schedule a consultation.