Having a great idea for a new business can be both inspiring and overwhelming. A Little Rock resident may have big plans and dreams for their fledgling entity, but if they do not set up their business correctly, it could fall into failure shortly after its inception. Picking the right business structure for a new business can help set it on a path to success in its chosen market.
What business structures are options in Arkansas?
The Arkansas Secretary of State recognizes a number of different business structures under state law. While some business structures require entities to be on file with the state for regulatory purposes, others do not. In Arkansas, a business owner may set their entity up as a corporation, partnership, or sole proprietorship.
What is a corporation?
A defining feature of a corporation is its separateness from its owner. When a business owner sets up a business as a corporation, the corporation exists as its own “person” under the law. It is generally not tied to the person of its owner, and for this reason the owner is not personally liable for claims against the business or tax matters. A corporation offers some protections for business owners but is subject to significant oversight at the state and federal level.
What is a partnership?
Two or more people can form a partnership in Arkansas, and there is no filing requirement for a partnership to be set up in the state. Unlike a corporation, the business of a partnership and its liabilities fall on the owners or partners in the organization. Partners contribute to the success of the business and may share it the costs of organizational expenses when they arise.
What is a sole proprietorship?
A sole proprietorship is one of the simplest forms of business in Arkansas. It does not have to be registered with the Secretary of State, and it may be established by one person on their own. While sole proprietorships are relatively easy to start, they do not offer the same protections from financial and legal liability as corporations. That is because a business established as a sole proprietorship is tied to its owner and does not exist as its own “person” under the law.
Setting up a business can be confusing and complicated for an individual who does not know where to start. Unfortunately, some business owners rush through the formation process in an effort to open their new businesses’ doors. Consultations with trusted business law attorneys can help new business owners understand their rights and options when it comes to starting their new entities in Arkansas.