What Are the Business Entity Structures for Start-Ups?

General Partnership

The easiest business entity structures for start-ups when there are two or more owners/operators is the general partnership. In partnerships, two or more people operate the business for profit acting as co-owners. All partners share profits and losses equally unless agreed otherwise in a contract. This also means all partners have unlimited liability for any debts the business accrues and are personally liable for lawsuits filed against the business.

Limited Liability Partnership

A limited liability partnership, or LLP, works well where there is one owner/operator and multiple investors. In this structure, one partner is personally liable for all the business debts and lawsuits, while the other investors have a more hands-off role and are only liable to the extent of their financial investment in the company.

Of the four New York business entity structures, LLPs provide liability protection for more of the partners than the other entity structures. However, these partners, called limited partners, do not participate in the daily running of the business. Instead, they hold a passive investment in the partnership.

Corporation

Corporations are legal entities that are separated from their owners. Taxes and legal structures are independent, and it’s easy to separate personal assets from business debts. The owner’s personal liability is limited solely to the amount invested in the business. While this does offer protection to the owners, there are strict guidelines on operations, including filing requirements, holding annual meetings, recording minutes, and keeping records of shareholders.

If you’re thinking of taking the business public or raising capital by selling stocks, establishing as a corporation is the best method to do this.

Limited Liability Company

A limited liability company is a popular option when deciding which business entity structure is best for your business. LLCs combine the qualities of a corporation and a partnership. Like a corporation, you can separate your personal assets away from business debts, and there is no limit to the number of owners the business can have. However, like partnerships, LLCs aren’t subject to business taxes and any profits and losses are reported on the owners’ personal tax returns.