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Choosing and converting to different business entities
One of the most important decisions that new business owners make is selecting their ownership structure. When determining what type of entity will fit your business best—limited liability company (LLC), partnership, S corporation, or C corporation—consider such factors as raising capital, control, legal liability, and tax benefits. Also, establish a back-up plan because once you have made your decision regarding which entity to choose, changes in ownership, tax law, or the economy may make it necessary to convert to an entirely new type of entity.
Raising capital
An essential job for every new business owner is raising capital. S corporations and C corporations allow for the sale of stock, which can be a quick and effective means of raising capital. Unfortunately, S corporations have a number of constraints, including being limited to one type of stock, having at most 100 shareholders, and restricting the type of shareholders they can have. For partnerships and LLCs that are taxed as partnerships, they raise capital by admitting additional partners or having current partners put more capital into the partnership. While there is no limit on the number of partners a partnership can have, from a tax perspective, having a partner buy into a partnership generally is more complex than a stock transaction.
