To reduce liability, different types of partnerships have been created over the years. This includes limited partnerships and limited liability partnerships. Your lawyer can discuss the pros and cons of each. Many business owners don’t want the headaches of a partnership in any form. Instead, they find it more beneficial to operate as corporations or limited liability companies.

In addition to liability issues, each type of entity has taxation issues. You may want to discuss your options with your certified public accountant (CPA) in addition to your lawyer before making a decision.

You should prepare to make the best of all circumstances that can trigger a buyout so that your business continues operating and each owner benefits from the advance planning made in the buy-sell agreement.

And because circumstances often change both on a business and personal level, it is important to have any existing buy-sell agreement reviewed on a regular basis with your lawyer to ensure that it still accurately reflects what you want.

For tax purposes, you will commonly hear about C corporations and S corporations. At the federal (and usually state) level, C corporation income is double-taxed. First, income is taxed at the corporate level. Shareholder distributions are then taxed as personal income. In contrast, S corporation income is usually passed directly to the shareholders and taxed at that level instead of double taxation.

C corporations tend to be large publicly traded companies while S corporations are more common for privately held businesses. Although entrepreneurs favor S corporations to C corporations, there is a growing trend to operate enterprises as limited liability companies (LLC) instead where the tax advantages of a limited liability company are similar to an S corporation and the formalities for operating a business are less burdensome.