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Sole proprietorship, partnerships and LLCs

On Behalf of | Jun 1, 2022 | Business Law

Perhaps you’ve been dreaming for years about starting your own business in Indiana and finally feel ready to take some tangible steps toward your goal. The startup phase of a business can be both exciting yet challenging. There are many issues you must resolve before you can take things to the next level. One issue that is typically relevant to a startup is choosing a business entity.

The type of business structure or entity you choose will no doubt have an impact on the type of legal protections that are available to your company. Each business structure has its own unique income tax issues, as well. One of your top priorities as you get the ball rolling in a new business might be to protect your own assets. Certain business entities enable you to do so more than others.

Sole proprietorships are good for businesses that are unincorporated

If you choose to open a business as a sole proprietorship, it basically means that there is no distinction between you, the owner, and your business. The greatest risk involved in this type of business is that you could lose your personal assets because of obligations or debts that your business incurs. If you don’t set up your business as an LLC or partnership, then it becomes a sole proprietorship by default.

Many people choose this particular business structure because it is automatic (if you do not create another entity), and it’s less expensive. The key factor to remember with a sole proprietorship is that you would not have limited liability.

Partnerships may be a good option if two or more people are co-owners

A partnership business structure might be something you’d want to consider if you’re looking for the least complex entity that is designed for two or more people who are opening a business together. A benefit of a partnership is that you and your partners can combine resources and share profits.

However, when you open a business under this structure, you’re also agreeing to share liabilities and debt. It’s imperative that you trust the person or people with whom you plan to start a business before choosing partnership as a structure.

LLC stands for Limited Liability Company

This business structure would provide you with the greatest amount of personal liability protection. Using it allows you to keep your personal assets and business assets separate. In other words, if your business runs into financial trouble because of a debt, your personal home, vehicles, bank accounts and other assets cannot pay the debt. The LLC protects your assets.

Forming an LLC is a lot more complex than starting a business under a partnership or as a sole proprietor. The first steps to establishing an LLC entity is to choose a legal name for your business. You must also file articles of organization for your business, including rules for organization. Submitting an annual report is also part of the process in many states, including Indiana.

The entity you choose for your business isn’t set in stone

You might be wondering what happens if you open a business in Indiana under one type of entity, then determine that another structure would be a better fit. This is not an uncommon occurrence. In such circumstances, you are able to convert your business from one type of structure to another.

It’s always helpful to speak with someone who is well-versed in business law issues in order to explore your options and seek guidance as to which entity best fits your immediate and long-term business needs and goals.