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Choosing a business entity is an important part of starting a business


Those who are starting a business have several important decisions to make. Perhaps the most important choice business owners face is choosing the type of business entity under which to operate. The type of business entity a person chooses impacts almost all aspects of how a business operates, and those who are considering opening a business should consider all of their business entity options carefully before making a choice.

Types of business entities

There are several business entities available to those looking to start businesses in Oklahoma. Each one has benefits and drawbacks that can impact the way that the business runs and, ultimately, whether it will be successful.

  • Sole proprietorship: A sole proprietorship is the most common type of business, as it offers the greatest flexibility and fewest legal controls. It is run by a single individual or married couple. Sole proprietors are personally liable for the debts of the business.
  • General partnership: Two people form a general partnership when they agree to pool money, skills or labor to form a business. The partners share in the profits and losses, and both have equal right to make decisions regarding business operations. General partners are equally personally liable for business debts. General partnerships usually are formed by written partnership agreements.
  • Limited partnership: A limited partnership has at least one general partner and at least one limited partner. The general partners handle the daily operations of the business and management decisions, and they are personally liable for all business expenses. Limited partners only contribute capital to the business and do not make operational decisions. Limited partners are only liable to the extent that they invested in the partnership. These entities must register with the Secretary of State.
  • Limited Liability Partnership: This partnership is similar to a general partnership, but each partner is shielded from liability for the other partner’s negligence. LLPs must register with the Secretary of State.
  • Limited Liability Company: A limited liability company is formed by several individuals or entities coming together to form a business. An LLC is usually governed by an operating agreement that details management of the business, allocation of profits and losses and assignability of interests. LLCs must register with the Secretary of State.
  • Corporation: A corporation is a legal entity, separate from those who formed it, that is formed to conduct business. Those who form the corporation are not personally liable for the corporation’s debts. However, it can cost more to form a corporation, and people must keep extensive records when running one. Additionally, corporations are often subject to double-taxation. Corporations must register with the Secretary of State.

Considerations for entity selection

Some issues that people should consider when selecting a business entity include:

  • How important is it for the owner to be shielded from personal liability?
  • How is the entity taxed, and how will that impact the owner’s personal finances?
  • How much will it cost to form and maintain the entity?
  • Does the entity allow for enough flexibility for the owners?
  • Will the entity meet the future needs of the business?

Guidance from an attorney

Those who are forming businesses should consult with an attorney before selecting an entity. An attorney who is knowledgeable in business entities can help assess a business’ needs and help the owner select the entity that would be most beneficial. If you have questions about business entity selection, speak with a skilled business entity lawyer who can advise you about your specific circumstances.