Business Structures for New Businesses: The Unexpected Necessity
Are you a new business owner? Worried about how to start your business and what type of entity is best for you? You’re not alone! Every year, more than one million small businesses are started in the United States. If you’re looking to start a new business in the near future, one of the first things you should be thinking about is what structure your business will take. In this blog post, we will discuss the most common types of business structures and what they entail. Will your business be an LLC or sole proprietorship? Do you need an attorney to help make this decision? What are some other considerations for structuring a company and why should I consult with professionals before moving forward?
There are a few things to think about when deciding on the structure of your business. The most important question is what kind of liability protection do you need? In other words, how much risk are you willing to take on? Different structures offer different levels of protection from personal financial responsibility in the event that your business fails. For example, if you are a sole proprietorship and your business fails, you will be personally liable for those debts. However, if you form as an LLC or corporation (C-Corp), then the owners of the company won’t be held financially responsible in most cases.
Sole Proprietorship
The simplest form of business entity is a sole proprietorship. A sole proprietorship is the responsibility of one person for the company's profits and debts. This type of entity does not provide the separation or protection of personal and professional assets, which might become an issue as your business expands and additional aspects hold you liable.
Depending on which market your business is engaged in, proprietorship prices vary. In general, early expenditures will include state and federal fees, taxes, equipment needs, office space, bank costs, and any other professional services your company wants to hire including contractors or freelancers.
Partnership
A partnership is an organization that is owned and controlled by two or more people. There are two primary kinds: a general partnership, in which everything is shared equally; and a limited partnership, in which only one partner has control of the business while the other (or others) contributes to and receives part of the profits.
This type of business entity is a great way to collaborate with family, friends, or business partners, such as opening a restaurant or agency together. Within the framework of a partnership, the partners may share in profits and losses as well as make decisions collectively. Keep in mind that you will be responsible for both your partner's actions and those taken by your company collaborator.
Limited Liability Company
A limited liability company, often known as an LLC, is a hybrid form of organization that allows owners, partners, or shareholders to limit their personal liabilities while still taking advantage of partnership tax benefits and flexibility. If it can't be proved that they acted in an illegal, unethical, or irresponsible manner when running the company's activities, members are protected from it.
Limited liability companies (LLCs) were established to give company owners the liability security that corporations have while allowing revenue and losses to pass through to them on their personal tax returns. LLCs can have one or more members, and revenue and losses do not need to be divided equally.
Corporation
A corporation is considered a separate entity from its owners under the law. It has its own set of legal rights that are distinct from those of its owners, including the ability to bring actions against it and be sued, own and sell property, and sell ownership rights in the form of stocks. State corporation filing fees differ by fee category and type. C corporations are taxed at both the corporate and shareholder level, while S corporations only pay taxes on their net income. Business entities can also extend liability to shareholders for corporations, which means that owners may be liable for company debts or legal issues if they don't take action to avoid them. Shareholders in a corporation do not have personal responsibility (liability) for the company's debts and actions.
Another factor to consider is how you want your business to be taxed. For example, if you structure as a C-Corp and plan on holding property for investment purposes (like stocks), then it will likely make sense to form this type of entity. However, if all the profits from your company are going towards funding growth or management salaries, an LLC might be the better option because it offers pass-through taxation. This means that the profits and losses of the company are reported on the individual tax returns of the members, rather than being taxed as a separate business entity.
Contact Abundance Law For Expert Advice
Choosing the right business entity is an important decision that can have long-term effects on your business. There are many other factors to consider when choosing a business structure, like how much paperwork you want to deal with, how many members you expect to have, and whether or not the business will be publicly traded. If you are interested in learning more about these factors, we recommend consulting with one of our expert attorneys at Abundance Law to get the help you need. We hope this article was helpful and informative. If you have any additional questions, reach out to an Abundance Law attorney!
