What Is An Entity Type?

by James on February 16, 2017 · 0 comments

business-861327_640If you’re planning on starting a new business, then you first have to figure out what kind of company it will be. By that, we don’t mean what your mission statement is or what types of products or services you sell, but how you classify yourself in the eyes of the law. In this case, you will have to figure out what kind of entity it will be, and then check your tax ID number status after applying.

If that sounds confusing, let us walk you through the steps. There are four primary entity types, so let’s break them down:

Sole Proprietorship

If you are going into business by yourself and don’t plan on hiring employees, then this is one of the simplest and easiest ways to file. You are tying your company’s assets to your own, meaning that you use your personal SSN as your business tax ID.


In this case, you are sharing the assets of a company with a partner (or partners), meaning that both of your personal assets are tied to the business as well. You can also file for a limited partnership, which means that you will be creating a separate entity, in which case you will have to register for an EIN number (Employer ID number).


This is one of the best ways to start a business if you can take the time and effort to do it. In this case, you are creating a completely separate entity, meaning that your assets are not tied to the business, and everything stays separate. This also means that you are not taxed on the company’s income, but only what you pay yourself from that.


A limited liability company gives you some options when it comes to filing taxes. You can either apply for a federal tax ID like you would for a corporation, or you can use your own SSN like a sole proprietorship.

After submitting your entity type, then you can check your tax ID number status to make sure that it’s approved. In many cases, consulting with a lawyer and/or an accountant will help you through the process, as well as ensure that you make the right fiscal choice.

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