Choosing the best way to legally structure your business is one of the most important decisions you will make. No single business structure will suit every kind of business.
Inthe US, businesses can be categorized into one of these;
- SoleProprietorship
- Partnership
- Corporation
- Limited LiabilityCorporation
There are hybridsof thefirst three categories, these include:
- SoleProprietorship
- General Partnership
- LimitedPartnership
- FamilyLimited Partnership
- Professional LimitedPartnership
- S. Corporation
- ProfessionalCorporation
- PersonalServiceCorporation
- Limited LiabilityCorporation
Thefollowingfactors define howa business is structured andoperates:
Considering the owner(s),their financial condition and what activities the business will been gaged in, you must decide whether your requirements will be best met by a sole proprietorship, partnership, corporation, or limited liabilitycompany (LLC).
The presentation here is intended as a brief introduction to the different ways businesses can be organized. It is not intended to serve as a substitute for professional assistance. Since state statutes vary, it is advisable to seek more detailed advice from local professionals who are familiar with the specific requirements of the state in question. And, since taxes are a prime consideration, it is important to consult with your accountant or tax advisor.
While you can always change the legal and/or taxstructure of your business if and when it makes sense to do so, it is not always simple and easy to do. A wise decision now could result in good dividends for years to come.
When considering the business structure that will be right for your business, we suggest you primarily focus your attention on four important areas of concern:
- Potentialliability
- Income taxes
- Investmentneeds
- The cost toestablish and maintain the business entity
Income taxes are a very serious factor. In general, “pass-through” taxation applies to sole proprietorships, partnerships, S Corporations and limited liability companies (LLC’s), unless the LLC has elected to be taxed as a corporation.
With these “pass-through” tax entities, all of the profits and losses pass through the business to the owners, or members, who report their share of the profits (or deduct their share of the losses) on their personal income tax returns. One should remember with pass-through taxation, owners must report and pay taxes on their entire share of the net profits of the business even though those profits were not actually taken out of the business.
On the other hand, corporations themselves pay income taxes at special corporate tax rates that are lower than those for most individuals: but the owners pay taxes only on any dividends, salaries and bonuses they receive. Paying little or no dividends allows corporations to build up capital (in “retained earnings’) for the furtherance of their business – a major advantage of corporations. Unless owners are willing and able to accept any and all risks that cannot be adequately and reasonably covered by business insurance, failing to take advantage of the limited liability offered by a corporation or limited liability company (LLC) could be a costly mistake.
Best Batchateu Business Consultant
BTIER Group, LLC 465 Lyell Avenue
Rochester, NY 14606
(585) 254-5130
