Choosing your Business Structure
Regardless of the nature of your business, industry or amount of money you earn, choosing the right type of business from the start is very important.
It is smart to legally separate you from your business and that is done by forming as a corporation. However, once this separation has taken place there are various requirements you are to adhere to. You must manage and function in a business like manner at all times.
Business structures are available to provide business owners with the level of protection they need against personal liability or negative tax implications. Your choices are: Limited Liability Corporation (LLC), S Corporation, C Corporation or Partnership. They are different and will impact you and your business differently, so choose wisely.
Such things as, record keeping, liability and taxation vary based on the business structure you choose. Understanding the fundamental differences between each and choosing the right one for your company is important and should be handled by a professional to avoid issues. Check out our Getting Incorporated Page
For individuals that are new to the incorporation process, the Limited Liability Corporation (LLC) can be the ideal choice as it provides limited liability to owners just as a corporation while being less complicated to operate. Additionally, a unique feature of the LLC is that it can achieve the same tax classification as an S or C Corporation while bypassing the formalities associated with them.
As your business grows and begin to earn a substantial revenue, you should consider switching to S Corporation, (S Corp). The IRS must approve your business to be a S Corp, as there are more operating requirements and ownership restrictions than an LLC, but they also have significant advantages. One advantage is the pass through of taxes, there are many aspects to this structure, however one of the main benefits is the IRS taxes the shareholders at their individual income tax rate and not at the entity or corporation level.
Corporation (C Corp) is the oldest and most common business structure. Most large companies are C Corporations and use the term, Inc., in their name, mostly because they encompasses numerous moving parts to the business. Having so many moving parts is also why more requirements and restrictions are placed on corporations. This structure offers several unique benefits, such as a greater range of fringe benefits.
Finally there is Partnership, this is the most used structure when the business has more than one owner. The first thing you want to do is establish a partnership agreement, a legal document detailing the rules, right and responsibilities of each partner, as well as how profits, losses and liabilities are distributed. With my Getting Started package, this agreement is created for the business. There are many types of Partnership, as outlined here, however, most are taxed similarly to the LLC.
Contact me to get your business structure setup correctly.