Those interested in starting their own for-profit business have a few options available to them as to the type of legal entity to form to best suit their needs. Among other options, most states offer corporations, limited liability companies and general partnerships as business formation options. Each form offers its own advantages and disadvantages.

Where a corporation offers protection from liability, owners of a corporation are subject to double taxation—once at the corporate level and again at the individual level. Partnerships offer a relatively simple means for two or more people to associate to carry on a business; however, the general partnership structure does not protect partners from the partnership’s liabilities. Partnerships are “pass-through” entities for tax purposes, meaning that partners of a partnership are only taxed at the individual level on the partnership’s earning, so the double taxation issue that comes up with corporations is avoided.

Although corporations have historically been the go-to choice for new businesses, limited liability companies have gained in popularity over the past several years. Limited liability companies, often abbreviated as “LLC”, offer the liability protection of a corporation and the partnership tax benefit of only being only being taxed once on the partnership’s earnings. This hybrid of a corporation and a partnership may seem like the obvious choice to make, but cost considerations with forming and maintaining a LLC may make the LLC an unattractive choice for many looking to form a new business. Initial filing fees and yearly registration fees are often higher for LLCs than for other forms of business entities.

Corporations who meet certain criteria set forth by the IRS may file for S corporation status with the IRS. If a corporation is successful in obtaining S corporation status, the IRS will allow such corporations to pass corporate income, losses, deductions and credit though to the corporation’s shareholders for federal tax purposes. Qualifying for this election allows a corporation to be taxed similarly to an LLC at the federal level.

In most states, you can find more information on your state’s offerings for forming a business on your state’s Secretary of State website, usually under a heading entitled “Division of Corporations” or something similar. Your Secretary of State’s website will also provide you with information on filing requirements and fees associated with forming a business. Keep in mind that most states offer various forms of partnerships and special elections for professionals that are not discussed above. As always, it is best to consult with an attorney licensed in your state for appropriate legal guidance on forming and maintaining a business.

The author of this article can be reached via email at Justice360@muslimcongress.org. For more information about Justice360, visit http://www.muslimcongress.org/360.

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