LLC, Corporation, or Partnership? Choosing the Right Entity for Your Business
Starting a new business is exciting — but before you open your doors, one of the most important decisions you’ll make is choosing the right legal structure. The entity you select impacts everything from your personal liability to your taxes, how you can raise money, and even how easily you can sell or pass on the business later.
In New Mexico, three of the most common types of business entities are Limited Liability Companies (LLCs), Corporations, and Partnerships. Understanding the differences between them can help you choose the best foundation for your goals.
LLC: Flexible and Protective
An LLC is often the go-to choice for small businesses because it offers personal liability protection without the formalities required of a corporation.
Key advantages of an LLC:
Protects your personal assets from business debts and lawsuits
Flexible management structure
Pass-through taxation (profits are taxed on your personal return)
Fewer ongoing formalities than a corporation
LLCs are a strong choice for many types of businesses, from professional services to small retail shops. However, if you plan to seek outside investors or go public one day, a corporation may offer a better fit.
Corporation: Built for Growth
A corporation is a more formal structure that separates the business completely from its owners (shareholders). It’s often used by businesses that plan to grow significantly or seek venture capital.
Key advantages of a corporation:
Strong protection against personal liability
Ability to raise capital through stock sales
Potential tax benefits under certain circumstances
Established credibility with investors and partners
Corporations are divided into C Corporations and S Corporations, each with different tax treatments and ownership rules. Choosing the right form can depend heavily on your specific plans and circumstances.
Partnership: Simple but Risky
A partnership is the simplest way for two or more people to own a business together. However, partnerships generally do not offer personal liability protection unless structured as a limited liability partnership (LLP).
Key advantages of a general partnership:
Easy and inexpensive to form
Shared management and profits
Flexible operational structure
But the risks are significant:
Each partner is personally responsible for business debts and liabilities, which can put personal assets at risk.
Because of these risks, many entrepreneurs today choose an LLC or LLP over a general partnership when going into business with others.
Choosing the Right Structure Starts with the Right Advice
Every business is different. The right legal structure for you depends on your industry, your goals, and your personal risk tolerance.
At Bradley Law Office, we help business owners across New Mexico build strong foundations that protect what they’ve worked hard to create.
Contact us today to schedule a consultation about your business formation needs.
Disclaimer:
The information provided in this article is for general informational purposes only and should not be construed as legal advice. No attorney-client relationship is formed by reading this content. Every legal situation is unique, and you should consult with a qualified attorney licensed in your jurisdiction to obtain advice specific to your circumstances.