top of page

Building a Solid Foundation For Your Business


Types of Business Structures:


  • Sole Proprietorship

  • Corporation

  • Limited Liability Company

  • Partnership



Sole Proprietorship


  • Personal Liability: Business owner has unlimited liability for business debts and lawsuits

  • Formalities: Virtually none

  • Management: Can only have one owner

  • Taxation: Business is not taxed separately from the owner

  • Recommended For: Business only needs owner to operate; Business doesn't need funding or employees; Business doesn't have customers/clients and doesn’t deal with money

Does this sound like an entity that you want to choose? No matter what anyone tells you, forming a sole proprietorship is a huge NO! Unless, you're okay with being sued for everything you personally own.


Corporation


  • Personal Liability: Shareholders are not typically liable for the debts of the corporation.

  • Formalities: Complex tax and legal requirements; Formal board of directors, shareholder meetings, meeting minutes, bylaws and record keeping are required as well as annual state registration.

  • Management: Managed by the board of directors, who are usually elected by the shareholders. Directors may appoint officers, who run the daily operations.

  • Taxation: Taxed at the entity level. If dividends are distributed to shareholders, dividend income is also taxed at the individual level.

  • Recommended For: Owners needing maximum tax and ownership flexibility combined with liability protection, and don’t mind adhering to the corporate formalities and record keeping burdens; Ability to sell shares to raise capital.

SO much to keep up with when you are just starting out! Keep in mind, you can always convert to a corporation in the future.


Partnerships


  • Personal Liability: Liability protection may vary by state; many times, at least one partner has unlimited liability.

  • Formalities: Relatively few formal requirements.

  • Management: Flexible management and operational structure.

  • Taxation: Income and losses are passed through to owners.

  • Recommended For: Owners wanting minimal formalities and maximum flexibility; Can afford good insurance; Want to structure business as employees climbing up to partner level.


Limited Liability Company


  • Personal Liability: Members are not typically liable for the debts of the LLC.

  • Formalities: Formal meetings and minutes are not required; however, annual state registration is required.

  • Management: Management is flexible. Typically, an operating agreement outlines management duties.

  • Taxation: By default, there is no tax at the entity level; income and losses are passed-through to the members’ individual tax returns. LLCs may also elect to be taxed as a C- or S-Corporation.

  • Recommended For: Best for owners wanting strong liability protection with minimal corporate formalities, and the simplicity of pass-through taxation.

A LLC is the best choice for entrepreneurs, creatives, and visionaries. You have protection against liabilities, provided that you maintain the few formalities.






13 views0 comments

Recent Posts

See All

Komentáře


bottom of page