Choice of entity refers to choosing the legal form for operating your business. A business may be operated as (1) a corporation; (2) a general partnership or limited partnership; (3) a limited liability company (LLC); or (4) a sole proprietorship. Each state has its own laws for the formation, operation, and maintenance of these business entities.

The primary considerations in choosing the best form for operating your business are (1) protecting your personal assets from the liabilities of the company; (2) tax strategies designed to deduct early losses, avoid double taxation, and convert ordinary income into long term capital gain at a lower tax rate; (3) an entity that will be attractive to potential investors and lenders; (4) an entity that allows you to offer equity incentives to employees (stock options); and (5) the cost of forming the entity and properly maintaining it—including filing the required documents with state agencies.

In Indiana, the choice of entity for operating a business is an important decision that affects liability, taxation, investment attractiveness, employee incentives, and administrative requirements. Indiana law allows for the formation of corporations, general partnerships, limited partnerships, limited liability companies (LLCs), and sole proprietorships. Corporations offer limited liability protection but may be subject to double taxation, whereas LLCs provide limited liability without double taxation, as they can be taxed as a pass-through entity. General partnerships involve shared liability among partners, while limited partnerships offer limited partners protection from liability beyond their investment. Sole proprietorships are the simplest form but offer no personal liability protection. When choosing an entity, considerations include personal asset protection, tax implications, the ability to attract investors and lenders, the capacity to offer equity incentives like stock options to employees, and the costs associated with formation and maintenance, including state filings. Indiana has specific statutes governing the creation and operation of these entities, and it is advisable to consult with an attorney to determine the most suitable structure based on the business's specific needs.