Legal Documents for
Starting a Business
“The way to get started is to quit talking and start doing.”
– Walt Disney
Find a Business Set Up that Works for You
Corporations are the most common type of business set up. They give their owners (called “shareholders”) limited liability. What that means is the shareholders are not liable for the corporation’s debts or other obligations (like promises the business makes in a contract, for example). They’re also set up to easily sell or transfer the shares to other owners, which makes them great for investors and selling the whole or a part of your business. They’re also separate from the owner shareholders, so you can keep business and personal separate. So, the business can borrow or raise money and enter into contracts on its own.
Limited Partnerships are less common than Corporations. The main reason you start a Limited Partnership is for tax planning, because Limited Partnerships are not taxed. Instead, the income from the business flows through the partnership without being taxed and on to the partners, who are taxed. That’s a benefit over a Corporation, which is taxed on its own. But there are some drawbacks. The Limited Partners are not liable for the business debts and obligations unless they take an active part in managing the business. If they do, the Limited Partners then become fully liable for the business. So, Limited Partnerships are mostly meant for allowing others to invest in the business and earn a return, without taking an active part in the operations.
General Partnerships are the least common type of business set up. The main reason you start one is for tax planning, because they’re not taxed. Instead, the income from the business flows through the partnership without being taxed and on to the partners, who are taxed. That’s a benefit over a Corporation, which is taxed on its own. But unlike a Corporation or a Limited Partnership, the partners are completely liable for the business. So why use a General Partnership? They’re mostly meant to give two or more existing businesses a way to work together in a tax efficient way. Since the businesses coming in as the General Partners are already set up (usually as Corporations, actually) and comfortable with their business risk, they’re okay with being fully liable in exchange for the tax benefits.