The measure of a business’s success often depends on choosing and establishing the appropriate business entity—which is referred to as business formation. Formation is generally the first step in starting a business and also may be a factor in business expansion. Transforming a sole proprietorship into a partnership, limited liability company, or corporation may be necessary for continued business growth.

What is the right entity for your business?

The main entity choices for business formation include:

• Sole proprietorship
• Partnership
• General partnership
• Limited partnership
• C Corporation 
• S Corporation 
• Professional Corporation (PC)
• Nonprofit Corporation
• Limited Liability Company (LLC)
• Professional Limited Liability Company (PLLC)
• Limited Liability Partnership (LLP)
  

Evaluating the following factors can help you make business formation decisions:

Liability or risk. Some businesses have inherent risk. For example, an oil drilling company bears liability for accidents. Choosing a corporate or limited liability formation shields owners from personal liability. If a business involves very little risk, such as an online retail business, business owners may benefit more by choosing a sole proprietorship or partnership.

Number of owners. More than one owner automatically eliminates sole proprietorship as an entity choice. Multiple owners have the option of forming some type of partnership, limited liability company, or corporation.

Income tax advantages. There are two types of taxation—
Pass through taxation, where the owners are taxed personally on business profits, as in sole proprietorships and partnerships
Company taxation, where owners are taxed only on their salaries or bonuses and the business pays taxes based on company profits.

Business formation expense. Sole proprietorship and partnership formation are simple and inexpensive. Other business entities are more complex and expensive, requiring articles of incorporation, corporation fees, and other costs.

Financing. By selling stock, corporations have more options for raising capital than other types of businesses.

Expansion plans. The business’ size, its goals to expand, and the planned rate of expansion may determine what type of formation is the most appropriate.

Business sale. Some businesses lend themselves more easily for sale than others. If the intention from the outset is to sell the business, sale is a major determining factor in choosing formation.

• Business Planning & Consulting
    o Business Planning 
    o Incorporation
• Incorporation Service

Discussing your business objectives with a business formation attorney in Southfield can help you make an informed decision about entity formation. Contact the experienced business formation lawyer at Weisman, Young & Ruemenapp, P.C. for all your questions on Michigan business formation.