NY business owners: Which entity is right for your small business?

There are many, here are the basics for the 4 most common options.

The New York Small Business Development Center with the State University of New York in Albany reports small businesses make up 99.8% of all businesses in the state. While businesses are booming, business owners who are interested in solidifying their place in this market are likely wondering which business entity is the right fit for their business interests.

Unfortunately, there is not one obvious answer. The answer will depend on the needs of the business and business owners. Having a basic understanding of the pros and cons of each entity option can help business owners have a better idea of which option is best suited to their interests.

Some of the more common options business owners take into consideration include a sole proprietorship, partnership, corporation and limited liability company (LLC). The following will provide some basic information about each of these options.

Option #1: The sole proprietorship.

The United States Small Business Administration (SBA) notes a sole proprietorship is a good option for those who are just starting out with a low risk business idea. This option provides an opportunity to test out the idea without putting much time or money into the business structure.

Although the easiest of the options, it also comes with the most risk. A sole proprietorship does not offer liability protection. This means the business owner's personal assets are generally not protected in the event of a lawsuit or other debt collection efforts.

Option #2: The partnership.

This option works well for businesses with more than one owner. Again, the SBA states this entity structure is generally best when starting out a business or for certain professional groups. All partners share the profits and losses of the business and report these figures on their personal income tax returns.

Although this business entity is also relatively easy to set up and run, this option also does not offer much in the way of liability protection. The partners are generally liable for the financial obligations of their business.

Option #3: The corporation.

A corporation is a legal entity that is separate from its owners. For tax and liability purposes, it is its own, separate entity. As a result, this option provides significant protection against liability. If there were an issue, the business' assets are at risk. As long as the owners follow the rules, their personal assets are protected from liability.

This entity comes with a higher cost to form and requires more effort from the business owners to maintain when compared to a sole proprietorship or partnership. This effort can include record keeping and following applicable regulations.

Option #4: The limited liability company (LLC).

This option is a bit of a hybrid. It can offer the protections of a corporation while also allowing owners to avoid dealing with corporate taxes.

Based on this basic information, business owners with a high-risk enterprise are wise to consider a corporation while more medium risk businesses may work well as an LLC. An attorney experienced in this area of the law can review how each option would impact your business interests and help you make the best choice for your needs.