HOST: If you're just starting your own business, should you organize it as a sole proprietorship, a partnership or a corporation? John Patrick Dolan explains the benefits and drawbacks of each in today's LawTalk.

JOHN PATRICK DOLAN: A sole proprietorship is a business entity, organization, where essentially it's an individual who owns a business as an individual. The individual is taxed on profits of the business, after the expenses are paid, and so it's very similar in a sense to having a job. That is, whatever income you get in minus your expenses is what you pay taxes on.

A partnership is an interesting arrangement. It's like a marriage, in a sense. You go into the business, you're individuals, you have a contract with each other, hopefully, that describes the pluses and minuses of your relationship. I always advise my clients, first question you want to answer is, what do you do when the partnership is ended, when you dissolve it?

And the reason is, almost all partnerships end. And usually the litigation and the loss of money and time and emotional output comes from when a partnership ends. If you don't plan up front what you're going to do if that eventuality takes place, you can dissipate all the partnership's assets and maybe a lot of assets that aren't partnership assets just trying to unwind the problem.

HOST: OK, so we don't want to do a partnership. What are the other options?

JOHN: Well, of course, you can incorporate. An incorporation usually happens in two ways. You can have a regular C corporation, which would be a corporation that has an unlimited lifetime and has certain advantages to it, or you could be a subchapter S corporation.

HOST: OK. What are the differences?

JOHN: Well, a C corporation essentially is an entity in and of itself. It's a tax-paying entity. It takes in income, it pays expenses, it pays salaries to its owners, and so the owners would be able to take a salary out and still pay their own tax, and then they would have money accumulating within the corporation. And, of course, the corporation would pay tax on the money accumulating in the corporation.

HOST: So you do have to file two tax returns. OK. Do you have to do that with sub S?

JOHN: You do have to do it with sub S, but the tax return for the sub S corporation is what they call an information return, and the real taxes, of course, are paid by the individuals. So the information return doesn't require you to send in any money. So as a small-business owner, if you're an individual, probably it doesn't pay to spend the money to incorporate, although I would definitely talk to a tax adviser to get another opinion.