It takes more than a great idea to get a new business off the ground. There are many expenses that must be covered and contracts that must be signed. However, before an entrepreneur can even open the doors of their new enterprise, they must decide how their business will be formed. Business formation concerns the type of corporate structure that an entity will take on and how that structure will impact the rights of its owners.

Defining two types of business structures

For example, a sole proprietorship is a recognized business structure for sole proprietors, but it is closely tied to the individual who establishes it. The personal liability of the business owner is tied to that of the sole proprietorship. Any business losses or burdens may be shouldered by the business owner.

A corporation, on the other hand, is an entity that exists separate and apart from its owners. The principles of a corporation are not personally liable for the corporation’s losses or allegedly wrongful acts, but corporate principles carry other responsibilities in their roles to shareholders and with regard to the establishment of necessary operating documents. All business formation plans have different rules and requirements that may make them more appealing to individuals with different intended business trajectories.

The importance of selecting the right entity for a business

In order to gain a full understanding of the options and opportunities that business owners have when forming their new entities, it can be useful to consult with knowledgeable and experienced business law attorneys. These professionals can explain the differences between different business structures to their clients and help them complete the necessary regulatory paperwork to ensure that their new entities are legally compliant. This post should not be read as legal advice and all business formation questions should be reviewed by local business law attorneys.