When it comes to what business structure is right for your venture, you have several options to choose from. Making the right decision can help you with everything from being profitable and poised for growth to staying tax compliant. Let’s take a quick and basic look at the different structures:
Sole Proprietorship: This is the option you will see many single workers select. Think of freelancers or those who consult with many different entities. It takes little set up effort to become a sole proprietor, but this is truly a one-man-band type of situation. Whatever the business owes, falls solely to you.
Limited Liability Company: Also known as an LLC, this structure option has really been having its day in the sun in recent years. Reasons for its upswing are many but one attractive feature is the fact that you can be the owner of your LLC but also have many different people involved in your operation, allowing you to share the load just a bit when it comes to business debt and taxes.
Corporations: A popular place to be, this is where you will see S Corps and C Corps. No matter the type, a corporation is viewed as an entirely different entity, separate from its owners when it comes to tax purposes. A higher level of personal protection comes along with a corporation, as well as lower corporate taxes. However, this can be trickery terrain than the options mentioned above.
The C Corporation is the standard corporation under IRS rules, while the S Corporation is a corporation that elects special tax treatment. A C Corp is taxed as a separate entity and therefore pays tax at the corporate level. Owners can face double taxation under a C Corp as the dividends are subject to tax at the individual level as well. The S Corp is a pass-through entity, so tax is paid at the individual level only. Besides tax, there are stock differences between the two types of corporations.
Partnerships: This is the option you will see for many businesses owned by multiple people. Each partner involved in the operation is responsible for making the business successful and in return they reap the benefits that are often laid out in a partnership agreement.
There are pros and cons associated with each structure. This blog only looks at the basics. We can help you carefully select the structure that is right for you. Whether it is for a new business, or you think your current business would benefit from a structure change, reach out to us for assistance.