In today's Freedom Friday blog and email newsletter, I want to talk about a topic that I am asked about frequently by business owners ready to start a new business, or if they need to restructure an existing business, and that's how they should choose a business entity (or structure) for their small business, or in other words, what's the best business entity for a small business.  That's today's topic.  In today's Freedom Friday blog and email newsletter, I'm answering the question, “What is the best business entity for my small business?”

In Oklahoma, choosing a business entity is one of the most important decisions you will make as a small business owner.  This decision will determine how you receive profits, tax issues, liability issues, and so much more.  A strategic business attorney can help you decide which business entity is best for your small business.  Here is a look at four (4) common business entities in Oklahoma:

1.  Sole Proprietorship

The first common business entity in Oklahoma is the sole proprietorship, which is the default business entity if it's just you (there are no co-owners or partners), and you don't file anything with the Oklahoma Secretary of State, unless you file a DBA.  Even a DBA can be a sole proprietorship if it is filed as a trade name for your personal name.  In a sole proprietorship, you personally receive all the revenue from the business, without having to pay yourself a salary or a dividend.  However, a major disadvantage of a sole proprietorship is that as the owner, you assume all the liabilities of the business.  If there is a contract dispute, or a problem with your product or service, then your client or vendors can sue you personally, placing your personal assets at risk.  You will also have to use your own personal credit to obtain any business loans.

2.    Partnership

The second common business entity in Oklahoma is the partnership, which is also the default business entity if it's you and you have at least one co-owner or partner, but you don't file anything with the Oklahoma Secretary of State, unless you file a DBA.  However, if you want to enter into a partnership, you really should have a written partnership agreement that explains the rights and responsibilities of the partners, how the profits will be shared, how the liabilities will be handled, how decisions will be made, etc.  There is more than one type of partnership, and a strategic business attorney can help you choose which one is best for your small business.  Your attorney should also help you make decisions regarding exit strategies and how to handle a partner's death.

3.    Corporation

The third common business entity in Oklahoma is the corporation.  You don't need to be a large business to create a corporation; some small business owners choose to be a sole shareholder corporation, as well.  A corporation offers several benefits, including limited liability, creating a clear separation between owners and management, and allowing an unlimited number of shareholders.  However, there are also disadvantages, including the fact that this structure can become very complicated, and can involve higher taxation.  You can ask the IRS to treat your corporation as an S-corporation to resolve “double taxation” issues, but there are limitations on doing that, and all corporations are less flexible in allocating income for tax purposes.

4.    Limited Liability Company (LLC)

The fourth and perhaps most popular business entity in Oklahoma is the limited liability company (LLC).  The LLC is designed to limit the liability of a company and its owners.  An LLC also helps you to protect your personal assets in case of a lawsuit or other legal issues, and an LLC has tax benefits as it can reduce “double taxation” for owners under certain circumstances.  There is also flexibility in an LLC for the number of owners of the company (owners are called members and have membership interests).  The only significant disadvantage of an LLC can be the cost of setting it up, maintaining it, and restructuring it as time goes on.

Thinking about starting a small business?  Or maybe your small business is having issues with contracts, leases, business partners, collection issues, or experiencing other barriers to growth?  Please contact me at [email protected] to schedule a FREE strategy session.

For more information about Liberty Legal Solutions, LLC, please visit our website at http://www.libertylegalok.com/