Forming a company is more than just finding a location and setting up shop. There can be a lot of paperwork involved. First you need to figure out what type of legal business entity is right for you.

Legal Business Types

Sole Proprietorship:

This is the simplest business entity. All you need is the proper licensing and permits for your company. You would still file taxes as an individual with some minor differences. This type of business has no legal protections. The debt of the business is the debt of the owner. Your personal property can be taken to pay off the debt of the company. Your personal assets could also be taken if you lost a lawsuit.

Partnership:

A Partnership is the same as a sole proprietorship, but with two owners.

D/B/A:

This stands for “Doing Business As,” which is the same thing as a sole proprietorship, but instead of doing business under you personal name, you are able to do business under the company name.  With a D/B/A, you are able to use the company’s name on all legal documents including contracts.  You can even get checks with the company’s name on them. A D/B/A makes you appear more professional.

Setting up a D/B/A is as simple as filing a form in your county or town and paying the registration fee, which is generally no more than a few hundred dollars. Although you should probably talk to an attorney before making any business move, setting up a D/B/A can be done without an attorney.

Limited Liability Corporation (LLC):

This is the most popular choice for most small businesses. The company is its own legal entity, so your personal assets are protected. The LLC would file its taxes as a business separate from your personal taxes. It is also easy to “pass through” money from the LLC to your personal account—like a paycheck.    

To set up a LLC, you should hire an attorney. It usually costs about $1,000 and takes approximately one month. The legal protections you will receive make it worth the time and money.

Corporation:

A Corporation is similar to an LLC because your personal assets are separate and protected. A corporation is a good business type for a company with many owners. You can “go public” and offer stock in your corporation. There are also specific tax breaks for corporations.

Corporations are generally more expensive, time consuming and complicated to set up. Corporations are also subject to more legal regulation than an LLC. You should sit down with your attorney to decide which type is best for you.