Entity type selection questions: what to know and why

Most people arrive at the meeting that will decide their business structure with one question: which one should I pick? That is the question nobody can answer from the doorway. The questions that get you an answer are below, and the trick to them is not the wording. It is asking each one of the person who can actually answer it.

A tax question put to a lawyer, a legal question put to a forum, a fee question put to an accountant: each gets a confident answer, and each answer is a guess. Sort your questions by who owns them. For a real business the structure itself is settled with a lawyer or an accountant who has your facts. This page only makes that conversation shorter.

What to take away

• Every question below belongs to someone: you, an accountant, a lawyer, the state's filing office, or the IRS. Ask it there and nowhere else.
• Your own questions come first, because the professionals can only reason from the facts you hand them.
• Figures are never yours to assume. The current fee, form, deadline or threshold is whatever the state office or the IRS says on the day you ask.
• Two questions cannot be answered by anyone yet, and it is worth knowing which they are.

Questions for yourself

Write the answers down before booking anyone. They are the raw material for everything that follows, and the reasoning behind each one is set out in the guide to choosing a business structure.

• How many owners will there be, now and in two years, and will they all be working in it?
• What is the worst realistic thing that happens in this work, and who would it happen to?
• How will money leave the business: regular pay, irregular draws, distributions, or mostly reinvested?
• Where will the business physically operate, and where are its customers?
• Which recurring chores would I honestly keep up in year three: filings, separate books, minutes?
• Has any client, lender or landlord already told me they need me to be a particular kind of thing?

Questions for an accountant

• For each legal form open to me, which tax classifications are available, and what does each mean for how I pay myself?
• What does each option cost to run every year, in bookkeeping, payroll and return preparation, not only to set up?
• Which elections have a window, and where do I stand relative to it?
• If I change my mind in two years, what does the switch look like from the tax side?
• What records would you need from me each year, and what happens if I cannot produce them?

The accountant's answers depend on numbers you may not have yet. Bring a realistic range rather than a hope. The IRS keeps its own description of what a business is expected to be able to produce on its page about keeping business records, which is a useful reality check before the meeting.

Questions for a lawyer

• How much of my exposure does a structure actually address, and how much is an insurance problem in disguise?
• Are there licensing rules for my trade or profession that restrict which forms I may use?
• What governing document does my form need, and what do the state's default rules do to me if I skip it?
• If I operate or hire in more than one state, where do I have to register?
• What have I already signed in my own name, and does forming anything change it? It does not, but the lawyer will tell you what to do about it.

Questions for the state filing office

These are questions of record, and the office's own website or clerk is the only source that counts. How to find that office and read what it publishes is covered in the state filing walkthrough.

• Is this name available, and what does availability mean here: reserved, distinguishable, or merely not identical?
• What is the current filing fee, and what recurring report does the form carry, due when?
• Which details on the filing become public, and is the agent's address among them?
• What does it take to amend the filing later, or to dissolve?

Ask the last one first if you can. The exit terms shape the entrance more than people expect, and the office answers it in a sentence.

Questions for the IRS

• Does my chosen form need its own federal identifier, and at what point do I apply? The sequence is set out in the piece on federal identifiers.
• What are the current criteria and windows for the tax election my accountant has proposed?

The IRS describes the tax treatment available to each legal form on its own business structures page. Read the current version, not a summary of it, and take the answer to your accountant rather than acting on it alone.

Questions you will need later

Two more belong on the list even though they are not urgent on day one. Who is named as your point of contact for legal papers, and is that arrangement still true a year from now? The answer lives with the agent of record. And what has to be told to whom when something about the business changes, which is the subject of keeping the record current.

Two questions nobody can answer

"Which is best?" has no answer without a business attached. And "what will I regret?" cannot be answered in advance by anyone, which is why honest professionals will say so. The substitute for both is a decision you can explain in writing and a date to look at it again.

Common questions

Do I need both a lawyer and an accountant?

For a one-person business with low exposure, an accountant alone often covers the tax side and the state's own instructions cover the filing. Once there is a second owner, an employee, or real liability, both.

Can a filing service answer these?

A filing service submits documents. It is not licensed to tell you which document to submit, and most say so in their own terms. Treat its answers as marketing rather than advice.

What if the accountant and the lawyer disagree?

They usually disagree because they are optimizing different things: tax cost against liability and governance. Put them in the same conversation, or carry each one's reasoning to the other. The decision is yours, made on both.

How long should this take?

The fact gathering is an evening. The professional conversations are usually two short meetings. People stretch it over months because they are waiting to feel certain, and certainty is not one of the outputs.

Is there a question I should ask that is not on this list?

Ask each professional what they would need to know for their answer to change. It is the fastest way to find out which of your facts are actually doing the work.