That’s right there are may different options when it comes to selecting the best business entity structure for your small business from sole proprietorships to C-Corps. and everything else in between. Depending on your situation and your particular business a specific business structure may be beneficial for you.
Let’s look at each of the different types of business entities:
Sole proprietorship: Unincorporated business with one owner or jointly owned by a married couple. This if the default business structure. If you launch a new business and are the only owner/operator of the business, you are automatically a sole proprietorship under the law. There’s no need to register as a sole proprietorship with the state, but you may need a local license/permit depending on your industry.
General partnership: Unincorporated business with two or more owners. Partnerships share a lot of similarities with sole proprietorships. The main difference is that the business has two or more owners. In a general partnership, all partners actively manage the business and share in the profits and losses.
Limited partnership and Limited Liability Partnerships and Limited Liability Limited partnerships: Registered business composed of active, general partners and passive, limited partners. A Limited partnership is a registered business entity, that must file paperwork with the State. There are two kinds of partners in a limited partnership: (1) those who own, operate and assume liability for the business (general partners) and (2) those who act only as investors (limited partners). Limited partners don’t have any control over the business operations and have fewer liabilities. Limited partners pay fewer taxes because of their limited peripheral role in the company.
C-corporation: Incorporated business composed of shareholders, directors, and officers. A C-Corporation is an independent legal entity that exists separately from the company’s owners. It is owned by its shareholders, it has a board of directors and officers that has control over the corporation. One person in a C-Corp. can fulfill all of these roles so it is possible to create a corporation with you in charge of everything. Think Walmart, Apple, Starbucks, and any other large business entity.
S-corporation: An incorporated business that is taxed as a pass-through entity. An S-Corp. preserves the limited liability that comes with a C-corp., but is a pass-through entity for tax purposes. This means that an S-corp’s profits and losses pass through to the owners’ personal tax returns and there’s no corporate-level taxation.
Limited liability company or Professional limited liability company: Registered business with limited liability for all members. A limited liability company takes positive features from each of the other business entity types. LLCs offer limited liability protection, but they have some paperwork and ongoing requirements and in that sense, they are more like sole proprietorships and partnerships.
There’s no one best business entity choice for all businesses, but there is a best option for your small business right now. And as tax law changes you must reconsider the best structure. Contact us so that you can make the best decision for your business. Ready to take your business to the next level?