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 Mississippi, the choice of entity for operating a business is an important decision that affects liability, taxation, investment attractiveness, employee incentives, and administrative requirements. The state allows businesses to be structured as corporations, general partnerships, limited partnerships, limited liability companies (LLCs), or 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, with no distinction between the business and the owner, meaning personal assets are not protected from business liabilities. Tax strategies, such as avoiding double taxation and optimizing for capital gains, are crucial considerations. Attractiveness to investors and lenders, the ability to offer stock options, and the costs of formation and maintenance, including state filings, are also key factors. An attorney can provide guidance on the best entity choice based on these considerations.