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Choosing the right formation for your new business

On Behalf of | Jun 14, 2023 | Business Law

Selecting the appropriate formation for your new business in Indiana is an important decision that can have long-term implications.

The formation you choose will determine the legal and financial structure of your business. Between a sole proprietorship, partnership, LLC and corporation, how do you know which is right for you?

Sole proprietorship

A sole proprietorship represents the simplest and most common form of business ownership. In this structure, the business and the owner are the same legal entity. As a sole proprietor, you have complete control over decision-making and operations.

On the other hand, it is important to note that business liabilities can personally affect the owner, leaving you liable for any debts or legal issues arising from the business.


Partnerships form when two or more individuals join together to jointly own and operate a business. This structure allows for the sharing of responsibilities, resources and profits. Two main types of partnerships exist in Indiana: general partnerships and limited partnerships.

In a general partnership, all partners have equal authority and share both profits and liabilities. Limited partnerships consist of general partners, who assume liability, and limited partners, who have limited liability but do not participate in managing the business.

Limited liability company

LLCs prove a popular choice for many business owners due to their flexibility and liability protection. An LLC provides a separate legal entity for the business, shielding personal assets from business debts and legal issues. It offers more flexibility in terms of management and taxation compared to a corporation. The owners of an LLC, called members, can choose to handle their taxes as a partnership or as a corporation.


Corporations are independent legal entities that exist separately from their owners. They offer the highest level of liability protection, as the corporation itself is responsible for its debts and legal obligations. Corporations have a board of directors who shareholders elect and manage the business.

In Indiana, two types of corporations exist: C corporations and S corporations. C corporations face double taxation, while S corporations pass through income and losses to shareholders for individual taxation.

Selecting the most suitable formation for your new business requires careful consideration of factors such as liability, taxation, management structure and future growth plans. Consulting with a qualified professional can provide valuable guidance and ensure that you make an informed decision aligning with your business objectives.


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