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PITFALL: Starting with the wrong business structure or entity

Each business structure or entity, whether a sole proprietor, general partnership, limited partnership, limited liability partnership, limited liability company, and corporation (c-corp or s-corp), has advantages and disadvantages. There are tax implications, financing advantages, and liability protection attributes associated with each of these business structures. As a simplified example: if there is to be preferred equity distribution, often, but not always, an LLC is the best choice. If the business is funded strictly by the founders, a corporation may be the best choice. The overall business plan, including exit strategy, should be used to determine the correct entity and timing of filing. This is not a decision to be made lightly or without analysis.

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