Forms of Business Organization

The specific types of equity financing available to you are determined, to some extent, by the organizational form of your small business. While your choice of business form or entity for your small business involves a wide spectrum of other important issues -- such as the degree of personal risk involved in the type of business, tax considerations, and the need to attract good business managers -- the following discussion highlights some of the financing considerations associated with different forms of business entities.

• Sole proprietorships are the simplest businesses to form, but equity financing is limited to the owner's assets.
• General partnerships require at least two owners, so equity financing possibilities are greater than in proprietorships.
• Limited partnerships can provide limited liability to some of the owners, if they're not active participants in the business, which can provide an incentive to invest.
• Corporations provide the most flexible possibilities for investors.
• Limited liability companies/limited liability partnerships are business entities that combine favorable tax treatment with limited legal liability for the owners.
• Which form is best for you? No formula exists for making the determination of which entity is best for your business.
• Business combinations are a way of leveraging your business's assets through contractual arrangements with other companies.