Starting a business is usually very exciting. But choosing the right type of structure for your business can be confusing. There are a lot of legal structures you can choose from, and all have their advantages and disadvantages.
The decision that you make could have a big impact on the type of paperwork you fill out, the type of liability you might face, and the amount of money you pay in taxes. If can also affect how future business partners and investors might deal with you. Because of this, consulting with an experienced business-planning lawyer early on can be quite advantageous.
What Are the Types of Business Structures?
- Corporation: Corporations are one of the most secure entities as they usually afford a lot of flexibility and advantages. For tax purposes, there are two types of corporations: C and S. The key difference between the C and S corporation is that of taxation – S-corporations benefit from pass-through taxation, meaning only the owner is taxed and avoids the issue of double-taxation.
- Limited Liability Corporation: An LLC is sort of a hybrid entity that can be used to separate members from the actual business. LLC’s have less operational formalities than classic corporations, but may be restrictive when it comes to attracting investors.
- Partnership: Partnerships are formed when two or more people come together and agree on the duties of running a business. Depending on how the partnership is structured, partners will generally share in the profits and losses of the company and will face personal liability for the acts of the others in the operation of the business.
- Sole proprietorship: These are one of the most common forms of structure. They are pretty simple from a tax standpoint and give a lot of managerial control to the owner, who also shoulders all financial obligations.
What Should I Think About When Choosing a Business Structure?
An attorney experienced in business law will be able to advise you on the types of business structures and their individual advantages and disadvantages.
Some of the key factors to consider include:
- Legal Liability: The type and amount of legal liability you want will determine the type of business structure that you pursue. If you have substantial personal assets that you want to protect, you might want to stay away from a structure of a sole proprietorship or a partnership.
- Taxes: You will want to think about the ways and methods you might be able to alleviate tax obligations. For example, a c-corporation structure might afford you more tax credits and deductions than an LLC, but might also be detrimental when it comes to double taxation.
- Associated Costs: Depending on your needs, you may find it less costly to set up an LLC than a complex C-corporation with multiple stock options. Ongoing accounting and reporting costs should also be considered. Talking with a knowledgeable business-planning attorney can help you weigh your options.
Stone Law Offices can assist you in planning a business structure that is right for your situation. For over 20 years, we have helped get businesses off the ground and running successfully. Let us help you. Contact us today for a consultation.