If you’re starting a business, have you considered what type of business structure you will operate as? It’s an important decision that will impact:
- How your business is organized
- How the money that flows in and out of your business is handled
- How your business is taxed
- Whether you will be personally liable for your business or not
If you file no paperwork for another business structure, your business is, by default, a sole proprietorship, depending on whether you operate alone or with a partner. You personally are liable for your business. If your company should be sued, your personal assets could be seized to pay the expenses. There is no tax benefit to these structures.
An LLC offers many of the same advantages of the S-Corp (pass-through taxes, legal protection), with an additional perk: you don’t need to be a US citizen to form one. You cannot, however, issue stock to stockholders with an LLC.
Considered a “regular” corporation, this business structure separates you as the owner from the business. There may be certain tax benefits to it. It has a Board of Directors and shareholders, however, there is no limit to the number of shareholders you can have. It is subject to double taxation, which may be a drawback for some.
An S-Corp is similar to a C-Corp in most ways, except that it is limited to 100 shareholders, and is considered a pass-through tax entity, which means that profits aren’t taxed at both the corporate level and again on shareholders’ personal income taxes.
Choosing a business structure like a corporation or LLC can separate you personally from being financially responsible for your business, protect your personal assets, and provide some tax benefits. Experto Tax’s small business experts can assess which structure is best for your company and help you with the paperwork.