Business entities are an integral part of business practice and economic productivity. An effective business practitioner must understand the characteristics of the major types of business entities, as these attributes can dramatically affect the nature of the business's relationships. Before beginning to conduct business, one should always weigh the benefits and burdens of the different types of business entities and make a conscious decision about which type of entity to form to conduct one's business.
Depending on the type of business, the people involved, and the goals of the business, some entities may be more appropriate than others for a particular business. To make the decision about the appropriate type of entity to form, one should consider factors including the following:
- creation and maintenance—the effort associated with forming and maintaining the entity
- continuity—the continuity or stability of the organization upon given occurrences
- ownership and control—the ownership rights and control of those involved with the business
- personal liability—the potential for personal liability of those involved with the business
- compensation—the compensation and division of profits among business owners
- taxation—the taxation of the organization's earnings and its distributions of profits to the owners
Weighing these and related factors, which vary in consequence depending on the entity, informs the choice of the type of business entity best suited to one's business. Examination of these characteristics will make obvious the effect of these attributes on stakeholders of the business entity. The decision of which entity is right for a particular business impacts many facets of a business's operation, including accounting, management, and finance.