Whether you are starting a business or running an existing business, it is important to choose to operate under the best entity structure for you. Pick the wrong one and you could pay more taxes than you need to or set yourself up for legal problems in the future.
There are five different types of entity structures:
- Sole Proprietorships
- C Corporations
- S Corporations
- Limited Liability Companies
Sole Proprietor: If you’re self employed, sole proprietor might make the most sense for you. It is certainly the least expensive choice and can be started quickly. But if you have any legal liability in your business, the sole proprietorship can be too risky. And it can be difficult to raise capital as a sole proprietor.
Partnerships: A partnership includes more than one person. Partnerships as a whole do not pay taxes, but instead, they pass along any profits or losses to the partners, who pay as individuals.
C Corporations: Most major companies, and many smaller companies, are set up as C Corporations. Here, the corporation itself pays taxes, separately from the owners or individuals.
S Corporations: This entity works more like a partnership where the owners or stockholders pay taxes, rather than the corporation itself.
Limited Liability Companies: An LLC is a blend of a corporation and a partnership, however, with this entity, owners are not always fully protected from personal liabilities if something were to go wrong.
So which one is the best for you? There are pros and cons to all types of entities. The important thing is to choose the most correct entity choice based upon your individual set of circumstances. Call for more information!