5 Things to Know About Entity Selection

5 Things to Know About Entity Selection

So you’re starting a business? Here are some threshold things to consider when choosing the entity:

1. Often the choice is between an S corporation and a limited liability company, which is a type of partnership with liability protection.  Both are considered “pass-through entities” for tax purposes.
2. Both entities provide the same protection against the company’s trade creditors, assuming the business is properly operated.
3. Generally, neither entity protects its principals from personal liability for negligence or misconduct of either the principals or their direct reports, so insurance is vital.
4. Private equity and other institutional investors typically invest only in corporations; and converting a corporation into an LLC can be a tax nightmare. So measure twice and cut once.
5. Where there is more than one owner: if the entity is an LLC you will need a detailed Operating Agreement, and if the entity is a corporation, you will need a Shareholders’ Agreement—in both cases including buy-sell terms.

The above is not a complete list. There are many other points to consider. Together with your accountant, we can help you choose and  organize your entity.  Visit www.plessandsauro.com for more helpful tips.