The next form is a “limited liability company.  An LLC is an entity separate from its owners, so ownership can involve one, two or more owners. As a separate entity, the LLC (not its owners) is responsible for the liabilities of the business.  If the business fails you may lose your investment, but your assets are not at risk. Corporations are the oldest form of business entity and as a result, people are generally at ease with a corporation.

Corporations provide the strongest protection against personal liability but may or may not have the same tax advantages of an LLC.   An “S-Corp.” is made for small business and can’t have more than 100 shareholders; however, it does feature pass-through tax treatment like an LLC.   A “C” corporation has a big disadvantage for start-ups; that is, that the income or loss of a C corporation only taxable to the corporation and does not pass through to shareholders.  Shareholders cannot use start-up or other losses to against income received by sources other than the corporation.  Neither an LLC nor a corporation is the best choice for all businesses.

The form of entity that is appropriate for your business will depend upon your situation.   One would be well advised to seek counsel before starting up a company because the tax and legal ramifications of the choice are significant.

With an LLC you do have several options–First you can divide up the LLC pie (so to speak) into Units–which are the equivalent of shares of stock in a corporation. For instance, Martha Stewards company issued LLC units when it went public . . . well you could have your LLC issue any number of units (say 1,000) and divide them up and for what ever price/consideration you wish as long as it is reasonable. There is also the more traditional way of looking at LLC ownership which is based on a partnership model of allocating percentages to each individual. If you are going to be using the LLC as a vehicle to raise money from third parties, the partnership/percentage method can become a real pain and you are better off simply issuing units. Contact me if you have any additional questions or concerns on these types of matters.