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Why do I need to establish a business entity?

When building and planning your business in Alabama, one of the best decisions you can make is to choose your business entity. Establishing this sets the stage for many other aspects of your business. Plus, knowing the entity upfront enables you to better get everything you need in order to open your business and begin making sales.

The U.S. Small Business Administration explains your business entity or structure influences many aspects of your business, so if you do not establish it early on, you will really only make more work for yourself in the long run. The typical options are cooperative, limited liability company, partnership, corporation and sole proprietorship.

One of the biggest things influenced by your choice of entity is taxes. How you pay them and the liability for them depends largely on how you structure your business. In addition, management and overall business governance is also greatly dependent on your entity type.

Your ability to raise capital often links to the type of structure. It also affects some legal aspects of setting up your business, such as the documents you must file before opening to the public.

Making the choice may be something that comes naturally. For example, if you are running and managing the business all by yourself, then you probably will establish a sole proprietorship. If you have a partner, though, you may need to put more thought into the type of structure you choose since you will have several different options that will make sense. This information is for education and is not legal advice.