Mary Casey is founder of The Harbor Law Group in Northborough, MA which specializes in intellectual property law.

The three types of legal home business organization are:

• The sole proprietor
• Limited liability company
• Corporation

Please note that the information today is general because formation of businesses is governed by state and local entities.

Home Business Organization: Sole Proprietorship

The first entity I want to talk about is the sole proprietorship. This is a very easy entity to form. One thing you do need to do is if your business name is different than the name of your business, then you will have to file a fictitious name statement or doing business as statement at your city and town offices. One advantage of being a sole proprietor is that you would be making all of the decisions and be making most of the profits. The major disadvantage is that you would be personally liable for all the debts and obligations of the business.

Home Business Organization: Limited Liability Company

The second entity is the limited liability company. Limited liability companies are formed by filing articles of incorporation with your particular secretary of state’s office. In addition to filing this form every year, you will have to file an annual report. The owners of an LLC are called the members, and the members and how they interact are governed by something called an operating agreement. This an agreement that you will create about how profits and losses are allocated amongst the members and how control is determined.

The major advantage of the limited liability company is they don’t have any personal liability. Therefore, if anything happens in the company, the only assets that are at risk are the ones that were put into the company and not your personal assets.

Home Business Organization: Corporation

The last entity we’re going to talk about is the corporation and this is formed by filing an article of incorporation with your secretary of state’s office and paying the fee required. Forms vary by state.

One of the disadvantages of a corporation is that you do an increased level of record keeping. The record keeping includes filing annual reports, having shareholder meetings and having board of director meetings. You also have to have an article of organization and you have to have bylaws. The corporation is managed by the officers and the board of directors and these people have to be named. The major advantage of a corporation is that you don’t have any personal liability.

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