Do's and Don'ts: Choosing a Business Form

THE DOs

DO know the tax and personal liability consequences of a business entity before making your choice.

DO develop a business plan. Your business plan may dictate the options you have in choosing a business form.

DO strictly meet the state requirements if your business entity is required to file organizing documents with the state.

DO ask your attorney if something doesn't make sense. Your attorney works for you, and should help you understand every part of the business start-up process.

THE DON'Ts

DON'T begin operating your business before determining its form. Operating as a sole proprietorship with the intention of forming a limited liability company or a corporation will not shield you from being personally liable for any obligations or debts prior to the formation of a limited liability company or a corporation.

DON'T assume that the business entity you choose is authorized to do business in other states as well. While a sole proprietorship and general partnership may be able to do business in other states fairly freely, other business entities may not even be recognized outside of their home state. This strips away the protections that the business entity provides its owners. At a minimum, limited partnerships, limited liability companies, and corporations need to register in the states where they will conduct business.

DON'T panic. Choosing a business form can be complicated. An attorney can make sure that you choose a business entity that is right for you.