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 Oregon, the choice of entity for operating a business is an important decision that affects legal liability, taxation, investment attractiveness, employee incentives, and administrative requirements. The options include corporations, general partnerships or limited partnerships, limited liability companies (LLCs), and sole proprietorships. Corporations offer limited liability protection but may lead to double taxation, although S-corporations can avoid this. LLCs provide limited liability and are taxed as pass-through entities, avoiding double taxation. Partnerships also offer pass-through taxation but vary in liability protection. Sole proprietorships are the simplest form with no separate legal entity from the owner, offering no liability protection. Oregon law requires entities to file appropriate formation documents with the state, such as articles of incorporation for corporations or articles of organization for LLCs. Ongoing compliance includes annual reports and other regulatory filings. Tax strategies, protection of personal assets, attractiveness to investors and lenders, the ability to offer equity incentives, and the costs of formation and maintenance are key considerations when choosing the appropriate business entity in Oregon.