What Is a Business Entity Owner?

A business entity owner is a person, group of people, or other business entity, that owns a legal business organization. Such legal entities come in various forms to suit the financial and business needs of their owners.

Potential owners should be aware of the following entities so they can make an informed decision for their business:

• Sole proprietorships
• Partnerships
• Corporations
• Limited liability companies (LLCs)

These entity types control the structure of a business. They do not impact creative decisions like what your company sells or which industry it transacts in.

Business entity owners must decide how they want to be taxed and whether it makes sense to reduce personal risk.

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Key Takeaways

• Business entity owners are owners of legal business structures.
• Available business entities include sole proprietorships, partnerships, corporations, and limited liability companies.
• Entity forms guide the business's overall structure, but not what the business does.
• Deciding on a business entity is often a matter of tax options and risk mitigation.

Understanding Business Entity Owners

Choosing the correct business entity often comes down to two critical issues for its owners: taxation and risk. The following business entity forms have advantages and disadvantages and how these are weighed by the owners depends on their needs and goals.

Here are the business entities that every new owner should know about before getting started:

• Sole proprietorships: Sole proprietorships are the default business entity in the United States. They are usually owned by an individual and are not registered with the state. Sole proprietorships are only taxed at the personal income level. Sole proprietors are personally responsible for all debts and obligations of a business. Therefore, an owner's assets can be at risk.
• Partnerships: Like sole proprietorships, partnerships are also unregistered business entities. They involve two or more people engaging in a for-profit venture. Partners manage the business and share any profits. Similar to sole proprietorships, there is no shield for an owner's personal assets.
• Corporations: Corporations are legal entities that are separate from their owners. They usually have many owners, called shareholders. Registering a corporation in a state involves a process called "incorporation." Corporations can choose how they want to be taxed. C corporations (C-corps) are taxed at the corporate level and again at the income level. S corporations (S-corps) are taxed only at a personal level. The personal assets of owners are not at risk against the corporation's debts and obligations.
• LLCs: LLCs are more accessible to set up than corporations but are treated similarly for tax purposes. LLCs can choose C-corp or S-corp status. They also limit the risk to an owner's personal assets in a manner that is similar to corporations. LLCs have no limits on the number of owners they can have, making them an attractive option to companies small and large.

Seeking Assistance

Every new business owner faces their own set of evolving characteristics and challenges. Choosing the right business entity, while rewarding, can be a complicated endeavor for many. It's never a bad idea to contact a small business lawyer when just starting out.

Related Topics

• Sole Proprietorships
• Partnerships
• Corporations
• Tax Differences Between C and S Corporations
• LLCs