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Basics of Business Entities

ISBA Black and GreenInformation from the Iowa State Bar Association provides an overview of the basics of the most common business entities used in structuring a business.  This is not intended to provide legal or other professional advice.  Working with a qualified business professional can help you make the right decision for you.  You can find a qualified business attorney via the Iowa State Bar Association's Find-a-Lawyer tool.

Sole Proprietorship
The simplest and most common entity by the sheer number of operating businesses. To create a sole proprietorship an individual need merely begin to do business. It may be necessary to have a business license, a sales tax permit, or to register the business name.

If seeking to go into business with another, you desire to form a partnership. A partnership can be created formally, (with a written agreement) or informally.  A written agreement identifying the primary terms of the relationship may help avoid the costs of litigation later. You will need to properly register the business name.

"C" Corporation
The “ordinary” corporation is referred to as a “C” corporation. A primary advantage of incorporation is that owners in the company  (stockholders) are only liable for corporate debts and obligations to the extent of their investments in the company.

"S" Corporation
An S corporation is essentially a C corporation which has met certain specific requirements and is therefore entitled to the liability limitations of a C corporation, but is taxed like a partnership. The primary disadvantage of an S corporation is that it has a higher cost of maintenance than other business forms.

Limited Liability Company
A limited liability company generally is a simpler form of business than a corporation but it retains the limitation of liability of a corporation, while having the option of being taxed like a partnership.

Other Considerations
Regardless of the particular form of business you choose, there are a number of other key considerations. Even if your business form features limited liability for company indebtedness, you should review all possible exposure to yourself and your company and make sure that insurance of the appropriate type and amount is obtained. 

If you still have questions, and would like to talk to an Iowa business expert, please call the Iowa Business Concierge toll free at 866-537-6052.

Talking with a start-up business counselor is a great way to learn more about what legal structure might work best for your business formation needs.  Click to submit an online form to the Iowa Business Concierge and get looped in with an Iowa resource provider who can help!