The business structure you choose will have legal and tax implications. This summary is not intended as a substitute for working with qualified corporate counsel or a business attorney before choosing a structure for your business. But it may help you ask some of the right questions. Show
While this list is not exclusive, as business attorneys we receive more questions about the following:Sole ProprietorshipA sole proprietorship is the most basic type of business to operate. It is in fact not separate from its owner/operator at all. You alone, or with one’s spouse, own the company and are responsible for its assets and liabilities. While there is no double taxation, it also offers its owner no limitation from liability. PartnershipWhile there are different forms of partnership, some of which offer limited liability to certain classes of its partners, in its simplest form it is an association of two or more persons to conduct some business activity, and, as a general partnership, it assumes that profits, liability and management duties are divided equally among partners. While it largely avoids so-called double taxation and passes profits and losses through to the partners’ individual income tax returns, its owners, as general partners, enjoy no limitation from liability. Limited Liability CompanyAn LLC is designed to provide the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership. Its owners (members) can generally achieve limited liability while avoiding corporate income tax at the entity level. That said, partnership taxation, which most LLC’s elect on a pass-through basis, is complex. CorporationA corporation, frequently taxed as a so-called “C” corporation, has a separate legal identity from its owners (the shareholders) and requires a bit more documentation of certain ongoing acts relating to its governance. In that sense it is more complex and often best suited for companies that plan to grow, attract Angel or venture capital investors, or issue equity (stock) as options to incentivize employees. S CorporationAn S corporation is a corporation with a legal identity separate legal from, and thus providing certain liability limitations to, its owners (shareholders) but whose shareholders elect to be taxed on a pass-through basis like a partnership, largely avoiding so-called double taxation: at the corporate level and on distributions paid to the shareholders. Some Advantages and Disadvantages of LLCs, C-corporations,and S-corporationsLike most business attorneys and corporate counsel, at DPA Law Group® PC the large majority of clients — from first time small business owners to serial entrepreneurs — ultimately organize as either an LLC or as a corporation, either a so-called C-corp or S-corp. LLCLimited Liability CompanyA limited liability company is a hybrid type of legal structure that provides the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership. Think of it as a more sophisticated, protective form of partnership than can be governed either by its members, or run more like a corporation, with managers or officers. It is ultimately flexible. With the flexibility, however, it can be more expensive to organize. The “owners” of an LLC are referred to as “members.” Depending on the state, the members can consist of a single individual (one owner), two or more individuals, corporations or other LLCs. Unlike shareholders in a corporation, LLCs are not taxed as a separate business entity. Instead, all profits and losses are “passed through” the business to each member of the LLC. LLC members report profits and losses on their personal federal tax returns, just like the owners of a partnership would. Advantages of an LLC:
Disadvantages of an LLC:
CorporationCorporation (C Corporation)A corporation (sometimes referred to as a C corp) is an independent legal entity owned by shareholders and managed by officers appointed by a board of directors. This means that the corporation itself, not the shareholders that own it, is held legally liable for the actions and debts the business incurs. Annually, the shareholders elect the members of the board of directors. Advantages of a Corporation:
Disadvantages of a Corporation:
S CorporationAn S corporation (sometimes referred to as an S Corp) is a special type of corporation created through an IRS tax election. An eligible domestic corporation can avoid double taxation (once to the corporation and again to the shareholders) by electing to be treated as an S corporation. Advantages of an S Corporation:
Disadvantages of an S Corporation:
Ultimately, the structure of a business entity comes down to how its founders plan to run and manage the business and the tax structure that best aligns with the owners’ objectives including the number and composition of those owners and investors. Authored by Andrew (Drew) Piunti, [email protected], ©2016. DPL Law Group, 1100 Lincoln Ave. #381, San Jose, CA 95125 What is a business that is considered separate from its owners?A corporation, sometimes called a C corp, is a legal entity that's separate from its owners. Corporations can make a profit, be taxed, and can be held legally liable. Corporations offer the strongest protection to its owners from personal liability, but the cost to form a corporation is higher than other structures.
What are 4 types of business ownership?Common types of business ownership
The most common forms of business ownership are sole proprietorship, partnership, limited liability partnership, limited liability company (LLC), series LLC, and corporations, which can be taxed as C corporations or S corporations.
Which type of business organization has a separate legal entity from its owner?Unlike a sole proprietorship or general partnership, a corporation is a separate legal entity, separate and distinct from its owners.
What are the 4 types of business?What Are the Four Types of Business Structures?. Sole proprietorship. A sole proprietorship is the most common type of business structure. ... . Partnership. ... . Limited liability company. ... . Corporation.. |