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Which type of business formation is right for you?

If you are thinking about starting a business in Louisiana, you might be unsure of what kind of business formation is right for you. For example, if you are starting a bookkeeping business and planning to work from home, a sole proprietorship could be the best option. However, if you and a friend are planning to open a coffee shop in Lafayette, you might want to explore other options like a partnership, limited liability company or corporate structure.

In general, the type of business entity you choose should mirror your organizational and ownership goals. The following business entity overview may help you decide how to organize your company.

Sole proprietorship

Out of the various business formation options, a sole proprietorship is the simplest and least expensive to create. You do not have to bother with organization documents like owner or management agreements. However, you may still have to apply for a local business license depending on the industry or services you provide.

Also, a sole proprietorship is directly linked to you, which means that you will not be separate from the business's debts or any lawsuits that someone brings against your company. You will be personally and solely responsible for every aspect of the business.

Partnership

If you plan on going into business with another person, a partnership could be the right type of formation for the company. If you choose this route, then you will have to create a partnership agreement that each of you must sign. This document will address certain aspects such as the management of the company and possibly even how to handle partner disputes.

Limited liability company

In general, it is a little more complicated to form a limited liability company (LLC) versus a sole proprietorship or partnership. You will have to file certain formation documents at the state level and provide information about each owner. At the tax level, you can make an election to treat the LLC as either a partnership or corporation.

Corporation

If you prefer a more formal type of business organization, you can opt for a corporation. Typically, forming a corporation is the most complicated and expensive route you can take. However, this type of entity provides further insulation to the owners and in terms of debts and lawsuits, the company is separate from the shareholders.

If you are planning to open a business, it is vital to choose an appropriate entity type that meets your needs. Do not be alarmed about making the wrong choice in the beginning as you can always reorganize the business in the future. For example, if you start as a sole proprietorship, you can always reorganize as an LLC or, if you bring in another partner or owner, as a partnership.

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