The legal structure of any business enterprise founded or incorporated in Michigan may be an important factor. The structure should be carefully chosen at the inception of the venture and should take the future needs and plans of the business in mind. This decision may affect nearly every aspect of the business, from how much paperwork needs to be done to what kinds of taxes have to be paid. Different structures also offer different rules for business liabilities.
The four major types of businesses are the sole proprietorship, the partnership, the corporation and the LLC. Each category requires different amounts of paperwork to set up and maintain. They each enjoy a different tax structure and have entirely different presumptions of liability.
The simplest type of business is the sole proprietorship. The person who sets up the business controls the venture, and all liability rests with that individual. He or she must also pay the taxes themselves in many cases. The second type of business is the partnership. This involves two or more people who make a formal or informal arrangement to share responsibility and liability for their enterprise. There is no special taxation arrangement; the partners each pay personal taxes on their share of the income.
Corporations are legal entities that can conduct business separately from their founders. The corporation is taxed directly and held directly liable for its actions. Although extensive paperwork is required to set up a corporation, liability is limited to the enterprise and the founders are usually not personally liable for debts. LLCs, or limited liability corporations, contain provisions for investors who do not want to run the business and need their liability to be limited to their investment.
The advice of an attorney may be helpful to those who wish to initiate a business partnership or start a corporation. An attorney may be able to suggest ways to comply with the law more effectively and efficiently.
Source: Entrepreneur, "Choose Your Business Structure", October 22, 2014