Troy Business Formation Attorney Helping You Find Success
There are four main types of business entities in Michigan: (1) Sole Proprietorships (2) Partnerships (3) Corporations, and (4) Limited Liability Companies (LLCs). For help deciding what business entity type is best for you, contact a Troy business formation attorney at Hermiz Law. We’ll explain the advantages and disadvantages of each type of entity.
About Sole Proprietorships
A sole proprietorship is an unincorporated business with one owner and is essentially the “default” business entity. For example, if you design and create ceramic frogs in your garage and sell them on the internet, you are the sole owner and your business is a sole proprietorship. You may file for and operate under a business name, known as a “Doing Business As” (DBA), such as “Sally’s Ceramic Frogs.”
These are, of course, the cheapest and least complicated of all business entities, but they have a potentially serious downside: you have no personal liability protection. So, for example, if Sally paints her ceramic frogs with lead-based paint, and some child likes to lick the frog and becomes sick due to the lead, the child’s parents can sue you and take your house, your car, and almost everything else you have.
About Partnerships in Michigan
Partnerships are unincorporated businesses that are owned by two or more individuals. Business owners may have a certificate of co-partnership on file with the county but there is nothing much in the way of formalities. Again, there is no personal liability protection. Each business partner is jointly and severally liable for any and all legal liability incurred by the partnership.
Creating a Corporation
A corporation is an incorporated entity that allows the entity to be treated as a legally separate entity from the owners. A corporation does indeed provide personal liability protection, which means that judgments against the corporation can reach only corporate assets, but not the assets of the individual shareholders (owners).
The downside of a corporation is that the corporation must adhere to various corporate formalities in order to maintain its personal liability protection. If the corporation does not adhere to these formalities or, under a handful of other certain circumstances, such as fraud, a judgment can “pierce the corporate veil” and reach personal assets.
People commonly think of different “types” of corporations, such as a “C-corporation” or an “S-corporation,” but these distinctions are actually just different ways for a common corporation to be taxed.
A Limited Liability Corporation, or “LLC,” is a kind of partnership/corporation hybrid. It is a partnership entity with one or more partners/owners, typically called “Members,” that also offers the personal liability protection of a corporation. However, LLCs are probably the most popular type of business entity because they are more flexible structure-wise and require only basic formalities. LLCs are also more flexible regarding taxation.
Other Types of Business Entities
Other types of more specific-circumstance business entities may be formed under certain conditions, such as:
- Limited Partnerships (LPs). These are partnerships that have one or more general partners and one or more limited partners. General partners are responsible for the debts of the LP, while limited partners are responsible only for the debts up to the amount they contributed.
- Limited Liability Partnerships (LLPs). These are similar to LLCs but are only available to professions that require a state license in order to practice; for example, architects, accountants, attorneys, doctors, etc.
- Professional Corporations (PLLCs). These are corporations that, like LLPs, are only available to professions that require a state license in order to practice,
Let a Troy Business Litigation Attorney at Hermiz Law Help You With Your Business Formation
A Troy business formation attorney at Hermiz Law can analyze the type of business you’re in or are considering, explain the pros and cons of each type of business entity, and then help you file all of the necessary paperwork. We can get your business off the ground and help you protect your personal assets. Contact a Troy business formation attorney today.