What are the different types of business formations?

Forming a business requires a lot of preparation. It is important to understand the various aspects of forming a business, including your options for the type of enterprise, who has ownership, and who has control of the business. Here is an explanation of the different business organizations available as you start your business pursuits.


A Limited Liability Company (LLC) is a business entity created by state law for the purpose of running a business or holding assets, such as real estate or vehicles. The owners are called members. The number of members can range from a single owner to many. LLC formation can be used to protect the personal assets of the members. In case of a lawsuit against the company, creditors or other plaintiffs will only be able to pursue the assets of the LLC and not that of each or any of the members.


A corporation is a legal entity that is separate from its owners. Corporations have the same rights as an individual, including entering into contracts, borrow money, own assets, bring legal action, hire employees, and more. Like an LLC, corporations have limited liability in case of a lawsuit, barring creditors and others from going after personal assets to rectify the issues of the corporation. Corporations are different than other forms of businesses is that corporations are a separate legal entity, like a separate person. The owners of a corporation are called shareholders and the business survives changes to members.


When two or more people agree to go into business together, they will share all of the profits and losses. In most situations, each partner in the business has some authority. They will all be required to invest their money, time, and skills. Though partners have control of the business, senior partners may have greater decision making authority than others. There are many different types of partnerships, such as general partnerships, joint ventures, limited liability partnerships, and limited partnerships.

Sole Proprietorships

A sole proprietorship is the most common form of business in the United States. It is also the most simple of the options, as there is only one owner. The sole proprietor owns all of the assets but it is also responsible for all of the liabilities, such as tort liabilities, contracts, and debt. While this is the most simple business formation to set up, it is also the riskiest and requires the owner to raise capital.


In a franchise, one party that is usually a big company will grant a smaller party, the franchisee, the right to open a branch and carry about business on behalf of the company. The franchisee is required to operate their location in line with terms that were outlined by the franchisor.

If you need an experienced attorney to assist you in your business ventures, you can rely on Friedman Schuman. Contact us today.

Friedman Schuman is an experienced and dedicated legal resource for clients throughout Pennsylvania. We proudly serve clients facing a wide range of legal matters. If you require the services of an effective attorney, please contact Friedman Schuman today to schedule a consultation.

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