Business Structures: What’s Right for My Company?

Choosing the right business structure can be a daunting decision for an entrepreneur. To help sort through the options, here’s a quick overview of the most common forms of small businesses:

Sole Proprietorship

“With a sole proprietorship (also known as a ‘sole prop’), you are the business. You can operate under your own name or using an assumed name. You get all of the profits, but you’re also personally liable for all of the business’s debts. Any business income or losses are reported on your individual tax return… Sole props are quick and easy to set up and shut down.” (Demystifying the Law: How Should You Structure Your Small Business? by Lawyers.com)

See also: Doing Business? Protect Yourself! (Joseph Bollhofer)

Limited Liability Company (LLC)

“LLC members are not personally accountable for company liabilities and debts. LCCs are treated as independent entities and, assuming that their status as independent entities is maintained, the liabilities of the company do not extend beyond the company to its owners. Thus, company creditors usually will be unable to reach the personal assets of LLC owners… It is important to note, however, that LLC owners … can lose the liability shield by acting illegally, unethically, or irresponsibly.” (Why Choose an LLC? by Frank Natoli)

See also: Creating an LLC? Maybe Not as Easy as it Looks (Jaburg Wilk)

S Corporation

“One of the benefits of an S corporation ownership structure is a payroll tax advantage. An S corporation owner will pay payroll tax on his or her salary, but not on the entire amount of corporate profit… This is one of the benefits S corporations have over LLCs, where all company profit is considered self-employment income and subject to payroll tax.” (S Corporation Owners Must Take Reasonable Salary by Cole Schotz)

See also: Incorporating Your Start-Up Business (Stephen Minnich)

C Corporation

“… for most growth businesses, whose goal is to raise capital, reinvest capital, grow fast, grant equity incentives, and ultimately be acquired or go public, a C Corporation is the way to go. For these businesses, the double tax bogeyman rarely appears, and most exits are structured as one layer of tax stock sales.” (12 Reasons for A Startup Not To Be An LLC by Davis Wright Tremaine LLP)

See also: LLC vs. S Corp vs. C Corp (Stephanie Chandler)

General or Limited Partnership

“A general partnership does not necessarily have to be in writing. This type of partnership provides no limited liability protection for its partners and profits and losses are shared equally unless otherwise specified in a partnership agreement… A limited partnership is a partnership that must be filed with the Secretary of State in the state(s) in which you operate your business. It is a partnership between at least one limited partner (who receives limited liability protection) and at least one general partner (who receives no liability protection).” (Which Business Form is Right for Me? by Eric Sigman)

See also: Fifth Circuit Holds That Fiduciary Obligations to General Partner Can Extend to Partnership (Katten Muchin Rosenman LLP)

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