If you’re starting a business, have you considered what type of business structure you will operate as? It’s an important decision that will impact:
Choosing a business structure like a corporation or LLC can separate you personally from being financially responsible for your business, protect your personal assets, and provide some tax benefits. ATAX’s small business experts can assess which structure is best for your company and help you with the paperwork.
Here’s a quick overview of different business formations:
If you file no paperwork for another business structure, your business is, by default, either a sole proprietorship or partnership, depending on whether you operate alone or with a partner. You personally are liable for your business. If your company should be sued, your personal assets could be seized to pay the expenses. There is no tax benefit to these structures.
Considered a “regular” corporation, this business structure separates you as the owner from the business. There may be certain tax benefits to it. It has a Board of Directors and shareholders, however, there is no limit to the number of shareholders you can have. It is subject to double taxation, which may be a drawback for some.
An S-Corp is similar to a C-Corp in most ways, except that it is limited to 100 shareholders, and is considered a pass-through tax entity, which means that profits aren’t taxed at both the corporate level and again on shareholders' personal income taxes.
An LLC offers many of the same advantages of the S-Corp (pass-through taxes, legal protection), with an additional perk: you don’t need to be a US citizen to form one. You cannot, however, issue stock to stockholders with an LLC.
For licensed professionals like lawyers, engineers, and physicians, this business structure offers protection against lawsuits and malpractice claims of other owners. Requirements vary by state, but many require that Board members and shareholders be in the same industry.
For an organization that isn’t focused on profit (such as a community art center), a not-for-profit (also called nonprofit) business structure offers many benefits. It may qualify for tax exemption and be eligible for grants. For 501(c)(3) nonprofits, donations are tax-deductible.
Not sure which business structure is right for you? Contact us today to get a free consultation to find out.