Forming a business can be confusing, but choosing the right entity type can be extremely important. After all, it can dictate liability, taxes, and business governance. This is why an introduction is so important. This is also why seeking financial, tax, and legal advice before starting a business can help avoid complications and missteps.
First, in our state, the Secretary of State is the recorder of corporate documents. However, depending on what the business will do, business owners may need to contact other federal, state, or even local agencies before filing with the SOS.
If one determines that only the SOS paperwork needs to be filed, a new business owner will need to decide on the business’s organizational structure. The most common types in Nebraska are sole proprietorships, partnerships, corporations, and limited liability companies. Each organization structure has specific formation documents. Our state does not have a general business license.
Sole Proprietorship and Partnership
Sole proprietorships are businesses with a single owners and partnerships have more than one. Neither has a legal entity separate from the owner(s). This means the owner is personally liable for all business obligations and taxes directly. For partnerships, this liability is based on the percentage of ownership. Formal documents are not required for these entities. Of course, liability can be shielded through the filing of a limited partnership, but only for some of the partners and a certificate of limited partnership is required.
Corporations are legal entities, separate from the owners, who are classified as shareholders. Since this is a separate legal entity, the shareholders have limited liability. Though, corporate formalities (issuing stock, holding meetings, etc.) must be observed to maintain this limited liability. Taxes are also paid twice, once at the corporate level and when shareholders receive distributions.
Limited Liability Company
Like corporations, a limited liability company is a separate legal entity controlled by members that are shielded from personal liability. Though, it does have tax advantages because both the company profits and losses are passed through to the members. Plus, limited liability companies are less formal than corporations and give more management freedom. A certificate of organization is required, though.