There is a lot to consider when starting your own business. Although it depends on the business you plan to start, there are five common business structures to consider.
A sole proprietorship is when a business is not considered to be a separate business entity. This results in the combination of business and personal assets and liabilities. This combination of assets and liabilities can leave you personally responsible for any debts and actions of the company.
Additionally, any business that is not registered as any other type of business it automatically considered a sole proprietorship.
A partnership is an easy way for two or more people to own a business. Limited partnerships are composed of one partner with unlimited liability, while the other partners have limited liability which results in limited control over the business. The profits of the business are passed through to personal tax returns. The general partners must also pay self-employment taxes.
Limited liability partnerships provide limited liability to every partner of the business. Every partner is protected from debts accumulated against the business. Additionally, each partner is not responsible for the actions of the other partners.
Limited Liability Company (LLC)
LLCs is a business entity that protects a business owner’s personal liability. If a lawsuit is filed against an LLC or the LLC files for bankruptcy, then the business owner’s personal assets will not be risked.
However, members of LLCs must pay and file self-employment taxes.
Corporation (C Corp)
A C Corp corporation is considered a completely separate legal entity from its owners. A C Corp corporation can make a profit, be taxed, and can legally be held liable. If a C Corp corporation has shareholders, it can potentially be taxed twice: once for profits made, and again when dividends are paid to the shareholders.
C Corp corporations have a strict filing and operational processes in order to sale stock of the company. Selling stock of a company can be a means for the C Corp corporation to make a profit.
Corporation (S Corp)
An S Corp corporation is identical to a C Corp corporation, except an S Corp corporation is designed to avoid the double taxation that can occur with the sale of stocks. An S Corp corporation allows a portion of the profits and losses to pass through the owner’s personal income without being subjected to corporate tax rates. However, S Corp corporations cannot have more than one hundred shareholders who must all be United States citizens.
Don’t delay good planning for your business and contact Smith Strong, PLC today to schedule your first meeting. Please call one of our offices at (804) 325-1245 (Richmond) or (757) 941-4298 (Williamsburg).