It’s very important that you choose the right company structure when starting out in the business world. There can be a great many impacts on your company which are all devoutly derived from the structure that you choose to do business under. For instance, your taxes will be strongly affected, your ability to raise money for the company will be affected, and if you happen to be sued, company structure will have strong implications there also. In order to make the right choice for your company structure, you should consider some of the following advantages and disadvantages of each business structure.
C-Corporation
A C-Corporation can protect you from personal liability, and can make it easy for you to raise capital by selling stock and other means, since this is not prohibited by law. However it’s fairly expensive to form a C-Corporation, and the business structure is subject to higher taxes and much more extensive paperwork, which is required by government authorities.
S-Corporation
An S-Corporation also provides protection for personal liability, and when filing tax returns company tax information can be included right along on your personal tax filing, so there’s an ease of filing advantage. However, not all companies are eligible to be formed under an S-Corporation structure, so precise requirements need to be observed before this structure can be chosen.
Limited Liability Company
A limited liability company (LLC) offers personal liability protection and the advantage of far less record-keeping than any kind of corporation. It’s also very easy to separate responsibilities and profits among the individual members of an LLC. One of the drawbacks to this business structure is that you can’t raise money for venture capital by selling stock. Another drawback is that all income of LLC members is subject to self-employment tax, which is not the case with either an S-Corporation or a C-Corporation.
Partnership
A general partnership might be a good business structure choice when there are multiple owners involved. This structure requires very little paperwork, and control and profits of the business are determined by the partners. Tax filing passes through to the personal income tax returns of each member, and there’s no real separation between business liability and personal liability. This means that personal assets are exposed in the event of any kind of litigation, and it is one of the business structures which does not allow for ease of fundraising.
Sole Proprietorship
A sole proprietorship is the single most common business structure chosen by startup owners. It requires very little paperwork to get the business started, and the owner retains complete control over operations. Profits can be filed on personal tax returns easily, because there’s no real separation between business and personal liability. A drawback of this is that in the event of any kind of litigation, your personal assets are not protected as they might be in an LLC or in a corporation kind of business structure. There is also very limited potential for raising money from investors in a sole proprietorship.
You need all the help you can get to run a small business successfully. Doerhoff & Associates is happy to help. We strive to provide what you really want and need, a unique and customized set of services to fill the gap and support you, the business owner.
