A Guide to Choose The Right Business Entity

Entrepreneurs like you drive progress in your part of the world every day. You take risks and need to adjust quickly, yet one wrong step, legally, can cripple all you are working so hard for. In this article, we want to guide you through one of the most important decisions as an entrepreneur, finding the right business entity type for your business.

Turning an idea into a successful business is exhilarating. But it means making some crucial decisions right from the start. We’re on your side to help you identify and avoid common legal mistakes so you can continue turning your vision into reality. In fact, the very first decision that you will have to make is selecting the type of business entity that fits your company. This decision will have significant financial and legal implications for your business, and that is why you should talk to a business lawyer and tax attorney before you make a final decision.

The type of business entity you choose will determine the amount of taxes you will end up paying in the future. It also influences your ability to raise funding from outside investors or get a small business loan. In addition to this, your business entity type is the one that determines your personal exposure you might face if someone sues your business.

There are over a dozen business entity types in the USA including, sole-proprietorship, partnership, non-profit, corporation, limited liability company, and so on. But the most common entity types are:

● Limited Liability Company (LLC)

● C-corporation

● S-corporation

With so many options, how do you know which is best for your business? That is what we will discuss in the next section.

Note: Do remember that you will still need the advice of a corporate lawyer and a tax attorney to guide you. At the end of the day, they are the ones who know the laws best in your area and can help you make the right choice.

Types of Business Entities

Limited Liability Company (LLC)

A Limited Liability Company is a “One Size Fits Most” kind of business entity. An LLC is a popular choice for most small business owners. It is a highly flexible kind of business, meaning that it can be managed in a number of ways. An LLC, which is short for the Limited Liability Company, offers limited liability protection to the owners for business debts and obligations.

Here are some reasons why an LLC makes a great option for a small business:

● An LLC has very few on-going requirements and paperwork as compared to the C-corps and S-corps.

● It offers liability protection to the owners for business debts and obligations. This means that the owners’ personal assets are not at risk and cannot be used to pay off business debts or any other legal liabilities.

● The IRS allows an LLC to choose the way they want their entity to be taxed. So, you can elect to be taxed as a C-corporation, where you will have to pay the taxes both on the corporate level and the personal level. Or, you can elect to be treated as a pass-through entity, where all your taxes are paid on a personal level and eliminate the possibility of being taxed twice.

● The owner of the LLC does not need to be a U.S. citizen or be a permanent resident in the USA. Anyone can form an LLC, but there are other legal requirements that a corporate lawyer can help you with.

● An LLC also offers enhanced credibility where lenders, suppliers, and partners may favor it more as compared to the other business entities.

Despite all the advantages, an LLC is not perfect. One of the drawbacks of the LLC is that the owner will have to pay the self-employment tax along with the personal income tax on profits earned. This makes the overall tax payment more than you might expect.

An LLC would be the best choice for you if:

● You want a flexible management structure for your company.

● Your startup has losses in the initial years and you want to be able to pass-through these losses to you and your partners.

● You want your business to own real estate.

● You want to use flexible accounting methods. LLC does not have to use the accrual method of accounting like some C-corps have to.

● You want flexibility in sharing profits among the owners.

● You do not want to have many on-going formalities and documentation requirements.

If the above is what you are looking for, then an LLC is a great choice. Just remember to get advice from a business lawyer and a tax attorney when making your choice to be sure that it is the right fit for your business idea.

C-Corporation

A C-corporation is a business entity that tends to have higher risk and higher costs to maintain, and offers potentially higher rewards as compared to the LLC. Considered independent legal entities, C-corporations have a higher separation from their owners. In this entity type, the officers, board of directors, and shareholders (who are the equity owners) control the company. However, all these roles can be taken care of by one person. So, if you create a C-corp, you can be in charge of everything, if you want.

Here are the reasons why a C-corporation makes a great option for your business:

● Just like an LLC, owners do not have personal liability for the liabilities and debts of the business.

● You will have the choice to offer stock options in exchange for funding to grow your company, unlike an LLC.

● The owners of a C-corp pay much lower self-employment taxes as compared to what the LLC owners pay.

● C-corps may be eligible to get a lot of tax deductions compared to business entity types.

But a C-corp does not have it all. There are a lot of tax laws and regulations that the C-corporation has to comply with. A C-corp has to follow various formalities like creating bylaws, holding annual shareholder and board meetings, and recording the minutes of meetings. Moreover, the process to start a C-corporation also includes a lot of paperwork and each state has its own laws for it. A corporate lawyer can help you with this.

Additionally, C-corporations face double taxation where the company pays tax on the income made (as part of the corporate tax return), and then the shareholders pay taxes on the dividends they receive (as part of their personal tax returns). The owners cannot deduct any losses the business might have on their personal income tax, as all the deductions are made on the corporate level tax payment. One way to avoid double taxation is if the owners invest their profits back into the company.

A C-corporation would be the best choice for you if:

● You want to grow your company into an empire and need institutional or venture capital funding.

● You want to be able to offer stock options to employees in your company so that they stick around longer and increase the productivity and revenue of the company.

● You want to be able to sell your business easily when you are done with it.

● You want the flexibility to set salaries for owners and employees to minimize Social Security and Medicare taxes.

● You want the flexibility to spread the earnings of the company among the shareholders and corporation for tax-planning purposes.

● You want company earnings to stay in your business so that it can grow.

● You want to lower your risk to the exposure of getting an IRS audit. An audit rate is higher for the business whose income is reported on the Schedule C of Form 1040, the Individual Income Tax Return form.

● You want to have an IPO ultimately or a large exit.

In short, C-corps can be a great choice for those who want to grow their company. It also helps you with a lot of legal protections that no other business types offer.

S-Corporation

The S-corporation is a “Proceed With Caution” kind of entity. It has limited liability protection just like the C-corp but the tax is paid at a personal level as it is a pass-through entity. This means that the shareholders will have to pay the tax on the profits they make on their personal income tax returns. To own an S-corporation, you will have to first form a corporation or an LLC and then elect to have it taxed as an S-corp using the IRS form 2553.

Here are the reasons why an S-corporation makes a great option for your business:

● The shareholders, who are the owners of the company, are not personally liable for the liabilities and debts of the business.

● There is no double taxation issue here as the S-corp is a pass-through entity like an LLC.

● There are also employment tax savings that you can take advantage of.

● If structured well, it can help you make the right amount of money and be successful in your business.

But there are a lot of negative points as well. With some limited exceptions, an S-corp cannot be owned by an entity, trust, or another corporation, unlike the C-corp of LLC that can be owned by anyone. All owners also have to be U.S. citizens. The S-corp has a limit issuing stocks, where it can have only one type of financial stock in the company.

It also has a limit on the number of shareholders that the company can have, 100. Additionally Restructuring an S-corp is highly challenging and tough. It is tough to move assets in and out of the company, especially if the assets keep increasing or decreasing in value. So, if you have an S-corp and want to convert it into another business entity, it could be very expensive in taxes and/or legal and professional fees. If you are looking to restructure an S-Corp, make sure to discuss carefully with a business lawyer and tax attorney.

An S-corporation would be the best choice for you if:

● You want flexibility in selecting your choice of accounting methods.

● You want the flexibility to set the employees’ or owners’ salaries to minimize social security and Medicare taxes.

● You want to take advantage of pass-through taxation and savings on self-employment taxes.

In short, an S-corporation is very inflexible. With all its positive and negative points, it is the perfect fit for businesses like the pure service business, and professional practitioners. So, before you choose to select this business type, ensure that you contact your tax attorney and corporate lawyer to see if it is the right choice for you or not.

The Bottom Line

In the end, it is very important for you to choose the business entity that is right for you. Keep in mind how it will affect your business, finances, and legal exposure. And while you choose your business entity, make sure that your tax attorney and your corporate lawyer agree with your choice.

As entrepreneur lawyers, we appreciate your path as a business owner. We love working with bold visionaries like you that navigate your industry with purpose. That is why we are here, to help you navigate hidden legal risks so that you can focus on your business.

For any queries and doubts that you have, talk to your business lawyer and tax attorney. In fact, we offer these services and can help you. So, if you need help with choosing your business’s type and starting your business, Freeman Lovell can help you. Feel free to reach out to me at josh@freemanlovell.com or click on the button at the top right to contact us to learn more!

RIFs and Furloughs, the Federal Way

By Adrienne Langmo • September 30, 2025
As the federal fiscal year draws to a close, thousands of federal employees face an unsettling possibility if a continuing resolution is not passed: not just another shutdown and temporary furlough, but permanent layoffs through Reduction in Force (RIF) notices. This week, the Office of Management and Budget (OMB) instructed federal agencies to consider issuing RIF notices to employees (if certain conditions are met) rather than the usual temporary Furlough notices issued during shutdowns. This is a big shift. But it does not mean layoffs are guaranteed. If they occur, federal employees are protected by a robust set of legal rights. There’s still a process before a RIF can be properly issued, complete with notice rights, retention rights, appeal rights and such other rights that the OMB does not purport to usurp. That said, we understand that the anxiety of this uncertain moment is real. Here are some tips to best prepare for the unknown, come the end of the federal fiscal year: Download Your eOPF, ASAP o Your electronic Official Personnel Folder may become inaccessible during a shutdown. Download it now to preserve your employment records. Download Your last 3 Performance Appraisals, ASAP o Include mid-year reviews and commentary. These documents may affect retention rights in a RIF. Also save records of other awards, commendations, and other notable performance records. Save Key Communications o Save emails, memos, or notices from HR or supervisors about your employment status or shutdown protocols. Ask Questions o Supervisors, HR, and union reps are navigating this too. Don’t hesitate to ask questions. If you receive a RIF notice or suspect you were subject to procedural violations, don’t hesitate to reach out to us for our advice. We are here to help. Shutdowns may be political. Your livelihood is personal. Let us help you safeguard it. -Adrienne Langmo, Partner

Demystifying FMLA

By Adrienne Langmo • September 12, 2025
If you're working for — or running — a business with under 50 employees, the Family and Medical Leave Act (FMLA) might seem like a distant federal regulation. But for eligible employees and covered employers, it’s a powerful tool for balancing work and life during major health or family events. Here's what you need to know. 🧩 The What The FMLA is a federal law that allows eligible employees to take up to 12 weeks of unpaid, job-protected leave in a 12-month period for specific family or medical reasons, including: The birth or adoption of a child Caring for a spouse, child, or parent with a serious health condition Recovering from a serious health condition themselves Certain military-related family needs The leave can be taken intermittently, in blocks, or in one long swath. During FMLA leave, employers must maintain group health benefits as if the employee were still working. When the leave ends, the employee is entitled to return to the same or an equivalent position. 👥 The Who FMLA is mandatory for employers with 50 or more employees within a 75-mile radius. So, if your business has fewer than 50 employees at a given location, you’re not legally required to offer FMLA leave —but you can choose to adopt similar policies voluntarily. Employees must also meet FMLA eligibility criteria: Worked for the employer for at least 12 months Logged at least 1,250 hours in the past year Work at a location with 50+ employees within 75 miles *State employees may have additional benefits provided under state law. Here, we’re discussing private employers and employees. 🛠️ Employer Takeaways Treating employees appropriately during their FMLA leave and upon their return can present some hurdles for employers and coworkers, particularly when an employee has been on leave for some time and, e.g., projects or programs have evolved in their absence. You don’t have to navigate these situations alone; we can provide your team with the tools and information necessary to smoothly navigate the full FMLA process and avoid any sticky FMLA retaliation or interference claims. And, even if you’re not legally bound by FMLA, offering comparable leave can be a smart move. It builds trust, boosts retention, and shows you value your team’s well-being. Consider crafting a voluntary leave policy that mirrors FMLA protections, including: Clear eligibility rules Defined leave duration Job protection guarantees Coordination with paid time off or disability benefits For small businesses, this means you have flexibility—but also responsibility to communicate policies clearly. Want to overhaul those policies or craft great messaging to your team, give us a call! We’re here to make leave policies less painful and more practical. 📣 Employee Takeaways If you work for a small Utah employer, ask about your company’s leave policies. While FMLA doesn’t require you to use your accrued leave during your FMLA leave, it allows your employer to write into its policy a requirement that you do so. Make sure you read that policy! And, even if FMLA doesn’t apply, your employer may offer benefits similar to FMLA. If you’re dealing with a serious health issue or family emergency, document your situation, give notice as early as possible, and follow internal procedures. Need help understanding those procedures or your rights as an employee? We got your back! ⚖️ Final Thoughts FMLA is more than a legal acronym—it’s a lifeline for employees facing life’s biggest challenges. For Utah employers, understanding the law and choosing to offer similar protections can set your business apart. Whether you're an HR manager, CEO, or a team member, knowing your rights and responsibilities helps everyone navigate leave with clarity and compassion.

Moonlighting, Side hustles, and Non-Competes

By Adrienne Langmo • September 3, 2025
So, you’ve got an employee that wants to teach a night class? Drive for a ride share? Pursue a passion project on the side? That’s great…. Right? You can ensure it’s great for both you and your employee by entering a non-compete, non-solicitation, non-disparagement, and/or non-disclosure agreement and setting clear workplace boundaries . Non-Compete Agreements can help employers do damage control when an employee wants to branch out. Non-competes alone are limited, but when properly crafted and paired with the other agreements listed above, they can provide peace of mind and protection to employers. Utah law takes a close look at these agreements when it comes to enforceability, so don’t go it alone when it comes to crafting one. Boundaries Set boundaries with your employees on the use of their time, your equipment, and your company’s other resources like client lists or IP. And pay close attention with remote or telework employees where boundaries may be squishier. Here’s some examples where lines may get blurred: Can the employee use the office printer, or their allotted printing budget for their teaching gig? What if it’s just a couple sheets of paper? What if it’s their 100-page course outline? Maybe. Do you have an equipment policy that allows employees minor personal usage of the office equipment? Does it define “minor”? Might you want to update that policy if it doesn’t provide the clarity you need? We can help! Can the employee pick up a ride share client in the company vehicle while they’re out running an errand for the company What if it’s their personal vehicle? What if the trip is along the way, no deviation? Definitely not the company vehicle for insurance purposes of carrying a random person around. But otherwise, this raises the charmingly titled legal doctrine of “frolic and detour” where it is much less messy in terms of liability (for accidents, etc.) if the employee does not engage in personal errands while on the clock, when they’re supposed to be completing your company’s business. No double dipping. No frolicking, as tempting as frolicking sounds. Can they email one of the company’s clients with a question that’ll help them move things forward on their side project? Generally, probably not, especially if you have a non-solicitation agreement in hand. But, it may depend on more details than this scenario offers. When in doubt, talk about it with your employee, get an idea of what their end game is, and give us a call if you need a sounding board. Need help handling questions like these, updating policies, or putting together a non-compete agreement? We can help!