Have You Selected the Right Business Entity or Structure?

Businesses fall into one of several legal structures. Each business structure has certain advantages and disadvantages. The type of business structure you choose influences everything from how your business is taxed to day-to-day business operations. When deciding which business structure is suitable for you, consider your business objectives as well as your financial resources and limitations. If you decide that your current business structure is not the best choice, you may need to reevaluate your situation and modify your business structure.

Exploring the Advantages of Each Legal Structure

Selecting a business structure may seem straightforward, but it is a complex issue that depends heavily on your unique situation.

• Sole Proprietorship – This is the simplest business structure and provides business owners with the highest level of independence. However, business owners with a sole proprietorship are personally responsible for business debts. This means that creditors can pursue your personal property if business assets do not sufficiently settle a debt. If protecting yourself from business liabilities is a top concern, a sole proprietorship may not be right for you.
• Limited Liability Company (LLC) – As the name implies, business owners who structure their business as an LLC have limited protection from business debts and liabilities. Like sole proprietorships, LLCs have pass-through taxation. This means that the business’s income is taxed along with the business owner’s personal income. However, LLC owners are partially protected from personal liability for business debts.
• S-Corporation – Shareholders in an S-corp report business earnings on their individual tax returns and are protected from personal liability for business debts. Businesses must meet certain criteria to be classified as an S-corp. You can have a maximum of 100 shareholders in an S-corp. 
• C-Corporation – Business owners are protected from business liabilities, and there is no limit on the number of shareholders in a C-Corporation. However, taxes are paid at both the business level and individual level. Investors and employees often find C-corps attractive because of the stock options available. C-Corps are subject to additional rules and regulations.
• Partnerships – Partnerships may be structured as a general partnership, limited partnership, or limited liability partnership. If you want to partner with one or more individuals, a partnership may be right for you. The personal tax requirements and potential liability for business debt for partners will depend on the specific type of partnership that is established.

Determining the Right Business Structure for Your Needs

Choosing a business structure is a major decision and not one to take lightly. If you are starting a business or are interested in changing the structure of your business, speak with an experienced business law attorney for personalized guidance. A skilled attorney will know what type of questions to ask to help you make the best choices.

Call Us for Help Today

Each business structure comes with certain advantages and disadvantages. For help determining which business structure is right for you, or to reevaluate your current business structure, contact the Gierach Law Firm. Our Naperville business law attorneys can help you make an informed decision that sets your business up for long-term success. Call us today at 630-228-9413 for a confidential consultation.

Source:

Internal Revenue Service