Because of the economy, a change of careers, or personal drive or interests, people are going into business for themselves like never before. Women especially are attracted to opening their own businesses so they can work and have a family on their terms.

Michigan law authorizes several different types of business forms under which you can conduct business. They include: Sole Proprietorship
Partnership
Limited Partnership
Limited Liability Company
For-Profit Corporation
Nonprofit Corporation
Cooperative
Doing Business As ("DBA")

Each business form has its advantages and disadvantages, and this article will briefly discuss each.

Sole Proprietorship A "sole proprietorship" literally means, "own alone." For small businesses in which personal liability is not an issue, probably the best ownership structure at the outset is the sole proprietorship.

Only one person can own a sole proprietorship, and it is not registered with the state as a limited liability company or corporation. The requirements are simple, and no paper filings with the government are necessary. You just go into business.

A sole proprietorship is legally the same as its owner. Therefore, business owner reports business profits and losses on his or her personal tax return. In turn he or she is accountable individually for any taxes, business debts, contracts, contracts, agreements and court judgments.

Partnership A partnership is the same as a sole-proprietorship, but with two or more people. No papers are filed with any governmental unit to form it. Each partnership owner pays taxes on his or her individual tax return, business debts, contracts, contracts, agreements and court judgments.

The most important document of a partnership is called a "partnership agreement" which spells out each partner's rights, privileges and obligations.

Limited Partnership A limited partnership is not the same as a sole proprietorship, although the name may imply that. It involves a person or entity labeled as the "general partner," and investors known as "limited partners." Venture capital startups generally involve the limited partnership, which involves complicated and expensive paperwork, which a skilled legal practitioner drafts. The average business start-up will not choose the limited partnership form; there are other ways of taking in investors with less complication.

The general partner is responsible for the business's actions, can legally bind the business, and is liable personally for business debts and obligations, unless the general partner is a corporation or a limited liability company. The limited partner is not liable for business debts or obligations (except to the extent of its investment), cannot bind the business, and has little or no control over daily business decisions or operations.

Limited Liability Company and Corporation The limited liability company and corporation are similar but different. They both limit the owners' personal liability for business debts and judgments against the business. However, a corporation is an independent legal and tax entity, apart from the people who own, invest in, control and manage it. A limited liability company is like a sole proprietorship, when there is only one owner, or a partnership, when there are two or more.

Because of the corporation's separate and distinct status, its owners, i.e., shareholders, file a corporate tax return to pay for the corporation's taxes on profits. The shareholders pay income tax on money they draw from the corporation.

The limited liability company's owners, i.e., members, pay taxes on their shares of business income on their personal tax returns each year. They do not file a separate company tax return. A single member limited liability company summarizes revenues and expenses on a Schedule C attached to the 1040 return. With a multiple member company, each member receives a K-1 listing the amount of that person's share of profits, losses, credits and deductions.

Each of these entities are good for you if you want to avoid personal liability for law suits, and want to protect personal assets from being grabbed to pay business debts and other obligations.

Finally, other than the business's constituent document (i.e., Articles of Organization for a LLC, and Articles of Incorporation for the corporation) the most important document of the limited liability company is the Operating Agreement, and of the corporation it is the Bylaws. These govern the behavior of owners, boards of directors and officers.

Non-Profit Corporation A nonprofit corporation is a corporation formed to pursue a public purpose. Whether it sells a service or product, state and federal taxing authorities exempt all revenues from taxation. Even though a non-profit may actually show a surplus of revenues over expenses, that too is not taxed so long as the activities that raised these were reasonably related to the public purposes.

Although a non-profit is organized according to state business laws, the federal government is the final judge on whether it is tax-exempt.

Cooperative A collectively owned business enterprise that sells good or services, which the owners finance and operate, and run for their benefit.

DBA DBA means "doing business as." It is a fictitious name unlike your name, your partners' names, or your company's or corporation's registered name. The DBA name is also a trade names or assumed name. A corporation, limited liability company, partnership and sole proprietorship can be a DBA. All you need to do is file a name statement. You file your DBA with the county clerk, if you are a sole proprietorship. Otherwise, you file it with the State of Michigan, Department of Licensing and Regulatory Affairs, or "LARA."

These are the organizational forms under which you operate your business in Michigan. Call Michael B. Rizik Jr. or George F. Rizik II to advise you on the best form that fits your needs. They will help you begin or reorganize your business the right way so that you can reach reach your goals.