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 South Carolina, 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, limited partnerships, limited liability companies (LLCs), and sole proprietorships. Corporations offer limited liability protection but may lead to double taxation, whereas LLCs provide limited liability without double taxation, making them popular among small business owners. General partnerships involve shared liability among partners, while limited partnerships offer limited partners protection from business debts. Sole proprietorships are the simplest form, with no distinction between personal and business assets, leading to personal liability for business debts. South Carolina requires different formation documents for each entity type, such as Articles of Incorporation for corporations and Articles of Organization for LLCs, filed with the Secretary of State. Ongoing requirements include annual reports and appropriate tax filings. Tax strategies, costs of formation and maintenance, and the ability to attract investors and offer equity incentives are key considerations when choosing the appropriate business entity. An attorney can provide guidance tailored to the specific needs and goals of the business.