When starting your business, consideration must be given to the goals of the business and, based thereon, an appropriate entity should be chosen. Below are the various business entities commonly used in business.

(a) Sole Proprietorship. If you intend to run the business by yourself, the business has a low risk of litigation, and you do not have a need for investors, the easiest and least expensive way of doing business is that of a sole proprietorship. If you are doing business under your own name, no fictitious business name statement or trademark application is required. If, however, the business name one other than your own consideration should be given to the value of the tradename. If the tradename is not so important so as to require state and federal trademark protection, merely file a fictitious business name statement, other file a state and federal trademark. Also, you will need to obtain a tax identification number and obtain the necessary permits and business licenses.

(b) Partnership/Joint Venture. If you involve any other person in the management of your business, you are no longer technically operating a sole proprietorship, but rather a Partnership or Joint Venture. In many states the difference between a Partnership and Joint Venture is no longer recognized. However, in those states that do recognize a difference between a Partnership and Joint Venture, a Partnership generally allows the partners to engage in an on going and continuous business and to engage in such other businesses for profit that the partners may determine; whereas a Joint Venture is a combination of two or more persons for a single profit making venture that does not allow any partner to bind any other partner to obligations for businesses ventures other than the limited business of the Joint Venture.

If a person is active in the management of a business containing two or more owners, he or she is generally considered a general partner and has personal liability for the acts of other general partners while acting within the course and scope of the partnership duties. Thus, unless a Limited Partnership is formed, owners of a General Partnership may be exposed to liability for acts and omissions of the Partnership or their co-Partners over and above their investment, even though they do not engage in the management of, or exert control over, the business. It is because of the liability imposed upon general partners that many investors prefer to invest in entities which provide protection from liability (i.e., corporations, limited partnership, LLC's). If a General Partnership is to be formed, the partners should draft, or have drafted, a Partnership Agreement, obtain a tax identification number for the Partnership and file a fictitious business statement. An attorney should be consulted to draw up the Partnership Agreement.

(c) Limited Partnership. If an investor seeks to limit his or her exposure in a Partnership to the amount invested and does not desire to make management decisions or in any manner run the company, a Limited Partnership should be formed and that person should be made a Limited Partner. Like general partnerships, the general partner should draft a Partnership Agreement, obtain a tax identification number for the Partnership and file a fictitious business name statement.

Unlike general partnership interests, limited partnership interests are regulated as securities; by the Securities and Exchange Commission and the various State securities regulatory authorities. Because a limited partnership and an investment therein is subject to regulation, generally the state in which the business is conducted requires the filing of an application accompanied with the payment of a filing fee. The filing fee, is generally less than the fee required by the state for forming a corporation, however, the franchise tax, in some instances, is equal to the franchise tax charged to corporations. If the investment is offered in more than one state, a filing under .Regulation D, Rule 504, et. seq. should also be done, as well as complying with the Blue Sky Securities Laws of each state where the securities are offered or sold.

In order to avoid the huge expenditure of time and money generally associated with the registration of securities for a public offering, the General Partner should, and in some states must, prepare a Private Offering Memorandum ("POM");. The POM should contain a detailed business plan and disclosure all material information about the business and risksof the investment therein. The POM also provided the potential investor with required warnings concerning the status of the limited partnership's securities.

Unlike Limited Liability Companies; and Corporations;, the General Partner remains personally responsible for the debts and obligations of the Partnership. Therefore, if the business has a high likelihood or incidence of litigation, it is advisable to form a corporation rather than a limited partnership, or form a corporation to act as the general partner of the limited partnership. An advantage of the limited partnership structure is that is allows a "pass-through" of profits and losses to the partners. Because of the regulatory requirements concerning investments in Limited Partnerships, the use of an attorney is highly recommended.

(d) Corporation. A corporation is recognized as "a person" under law and can transact business as if it were an individual with its own identity. Hence, the corporation is generally held liable for its civil acts, errors and omissions rather than its shareholders (owners), directors, officers, and employees. Thus, the shareholders, officers and employees are generally shielded from liability. There are exceptions, however, to the "corporate shield," such as criminal proceedings, certain tax and administrative proceedings, and civil proceedings in which it is shown that the corporation is under-capitalized, a sham and an alter ego of its owners constructed for the primary purpose of escaping liability.

One of the primary purposes of forming a corporation is to obtain the shield from personal liability. The corporate U. S. Income Tax rates are less favorable than the tax rates for individuals and unless the corporation elects Subchapter S, which allows the "pass through" of corporate profits and losses to its shareholders, the shareholders may be faced with double taxation (the corporation is taxed on its income and the shareholder is taxed on his or her dividends, which the corporation cannot "write off").

Many investors, however, prefer to invest in a corporation rather than a Limited Partnership since the corporate structure lends itself more readily to an exit strategy (a way of cashing out either by taking the company public or by merger and acquisition). Also, the corporate structure provides for an unlimited "lifespan" and allows the investor a bit more latitude to exert control over the corporate officers without jeopardizing the investor's standing of limited liability.

As with a limited partnership, the shares of a corporation are also considered securities and are subject to the regulations, registration and disclosure requirements discussed above.

Starting and operating a corporation tends to be much more expensive and time consuming than starting and operating a limited partnership. The filing fee for starting a corporation and the franchise tax is generally more expensive than the fees and taxes required for a limited partnership. The corporation also requires that the directors and officers comply with the corporate formalities such as keeping corporate minutes of the shareholders and directors; annual and special meetings. Additionally, if there are any lawsuits filed by or against the corporation, it cannot represent itself in court and must retain an attorney to represent it.

Again, due to the complexities of forming and operating a corporation, as well as compliance with Federal and State securities laws, it is highly adviseable to seek the advice of an attorney.

(e) Limited Liability Company (LLC);. This is an entity form that recently came into existence in many states. In essence it provides the corporate benefits of limited liability to a sole proprietorship or partnership without the requirement of maintaining minutes, holding director's and shareholder's meetings, and complying with many other corporate formalities. This form of business entity generally costs the same as forming a corporation with the exception of the costs incurred in maintaining corporate formalities. LLC's require the same compliance with the law and securities regulations as do corporations and limited partnerships. LLC's are preferred by many small business owners that wish to remain privately held.