What is business formation?

Business formation is an umbrella term for several different ways of legally structuring a business. They include becoming a limited liability company (LLC), partnership, C corporation, S corporation, cooperative, or nonprofit (known as 501(c)(3)).

The right legal structure for your business is one of many things that are important to consider before starting your business. Carefully consider the pros and cons of each business entity to determine which features best meet your needs.

Selecting a business structure is not a permanent decision. As a business matures, ownership may change the legal structure. For example, some small businesses begin as sole proprietorships and then grow into LLCs.

Business formation is sometimes referred to as "incorporation." However, since "incorporation" may be associated with forming a corporation, it is better to use the term "formation."

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