The difficulty in starting a business is knowing what legal entity best suits your needs and goals. Each entity has its own unique legal requirements, documents and filings. Which ever entity is the right choice for your new business, will depend on your short term and long term goals. Contact our office to receiver personalized advice which of the below company structures is best suited to your needs.
Sole Proprietorship: One person owns all the assets of the business in his or her own name and does business for himself or herself. A Sole Proprietorship is not a separate legal entity so the sole proprietor must report income and expenses from the business on Schedule C of her or his own personal federal income tax return. Many small businesses operate as sole proprietorships, including professionals, consultants, and other service businesses. Often, these are businesses that require minimal amounts of capital. There is no limit to the personal liability of a sole proprietor to business creditors.
General Partnerships: Joint business in which responsibility for management, profits, and, most importantly, the liability for debts is to be shared by the general partners. Any partner alone can bind the partnership on contracts and any general partner is liable for all the debts of the partnership. The partnership itself does not pay any income taxes on profits, business income simply “passes through” the business to the partners, who report their share of profits (or losses) on their individual income tax returns and each partner must make quarterly estimated tax payments to the IRS each year. The general partnership is the simplest and least expensive co-owned business structure to create and maintain. You don’t have to file any paperwork to establish a general partnership.
Limited Partnerships: A limited partnership consists of general partners and limited partners. Each limited partner makes an investment of funds into the partnership and is supposed to receive a predetermined share of the profit. Limited partners have limited liability but don’t participate in management. A limited partnership requires a written agreement between the general partners and the limited partners.
Limited Liability Company (LLC): A relatively new form of legal entity that has both the characteristics of a corporation and of a partnership. It is a non-corporate business whose owners actively participate in the organization’s management and are protected against personal liability for the organization’s debts and obligations. The LLC is a hybrid legal entity that has both the characteristics of a corporation and of a partnership. LLCs are not taxed as a separate business entity, LLC members report profits and losses on their personal federal tax returns, just like the owners of a partnership would.
Corporations (Inc., Corp): An organization formed with state governmental approval which acts as a separate legal entity to carry on business, which can sue or be sued, and can issue shares of stock to raise funds with which to start a business or increase its capital. Because corporations are separate legal entities from their owners, liability for debts or damages caused by the corporation are limited to the company’s assets. There are two primary types of corporations: S Corporations and C Corporations. The biggest differences between the different types of corporations have to do with how stocks are held and how taxes are assessed.