What corporate structure is best from me?

So many decisions need to be made prior to starting a business. One of the biggest decisions is what type of legal structure best suits your business. It is important to understand the different types as it can impact your taxes and liability. Here is the most common type of business structures:

• Sole proprietorship: Individuals who operate solely and are not a separate business entity. Business assets and liabilities are not separate from your personal assets and liabilities. This type of structure is the easiest to set up, is low-cost and has minimal paperwork.

• Partnership: Two or more people to own a business together. Each person contributes money, property, labor or skill, and shares in the profits and losses of the business. There are two common kinds of partnerships: limited partnerships (LP) and limited liability partnerships (LLP).

• Limited Liability Corporation (LLC): This legal entity has characteristics of a corporation, partnership or sole proprietorship. LLC’s provides liability protection for the owner shielding their personal assets. Additionally, it has the benefit of pass-through taxation allowing for business income or losses to be recorded and taxed on the owner's personal tax return. Typically, LLC’s take less paperwork, and the process to setup is much simpler than a corporation.

• Corporation: Sometimes called C corps these are legal entities that are separate from its owners. C corps can make a profit, be taxed, and can be held legally liable. C corps are subject to the drawback of double taxation. However, S corps allow profits, and some losses, to be passed through directly to owners' personal income without ever being subject to corporate tax rates. In general, corporations are much more complex in nature, require more paperwork, need to meet certain guidelines and have more stringent record keeping requirements.

If you are having a difficult time choosing what is best for your business, contact your Tax Preparer, Insurance Agent or Attorney. They will be able to advise you on the best fit for you based on the size of your company, your potential legal liability, and the type of taxes your business should pay.

References

Edwards, J. (2021, 9 19). LLC vs. Incorporation. Retrieved from Investopedia: https://www.investopedia.com/articles/personal-finance/011216/llc-vs-incorporation-inc-which-should-i-choose.asp

IRS Business Structures. (2022, 1 19). Retrieved from IRS.gov: https://www.irs.gov/businesses/small-businesses-self-employed/business-structures

SBA.gov. (2022, 21 03). Retrieved from Small Business Administration: https://www.sba.gov/business-guide/launch-your-business/choose-business-structure

Twin, A. (2021, 9 21). Sole Proprietorship. Retrieved from Investopedia: https://www.investopedia.com/terms/s/soleproprietorship.asp