What Business Structure Should I Start With?
There are six types of business structures:
Limited Liability Company.
Each has its own advantages and disadvantages and which one best meets your needs depends on a variety of issues. You should consult with an experienced business attorney who can answer your questions and advise you on which business structure will be most advantageous to you.
You own the business and are entitled to its profits, but responsible for its assets, debts, losses, and liabilities. You must pay its taxes as part of your individual tax return.
Two or more people share ownership. A partnership requires a partnership agreement, a legally binding document setting forth the partners’ ownership percentages and a number of other things.
A corporation is an independent legal entity owned by its shareholders. It is responsible for its own assets, liabilities, profits, losses, and business practices. It has its own Employer Identification Number (EIN) and pays all Federal, State, and local corporate income taxes. You can apply for an EIN through the IRS or use a third-party provider like Gov Doc Filing.
An S corporation is a special kind of corporation created through a tax election under Subchapter S of the Internal Revenue Code.
Limited Liability Company (LLC)
An LLC is a hybrid entity that combines the limited liability of a corporation with the tax benefits of a partnership. And forming an LLC is best to protect your personal assets from litigations.
A cooperative is a company owned by and operated for the benefit of the people using its services. Usually an elected board of directors and officers run the company and regular members have voting rights.
Partnerships, S corporations, LLCs, and cooperatives are all taxed the same way. They pay no taxes, but must file an annual informational tax return using their EIN number. Members pay their respective shares of the entity’s taxes by means of a Schedule C attached to their personal tax returns.
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