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Cheat Sheet to Business Structures

POP QUIZ! WHAT'S THE BEST STRUCTURE FOR YOUR BIZ? Get ready to ace your entity selection with a few tips on picking the right one for your business. No cheating necessary! QUESTION: HOW MANY BUSINESS STRUCTURES ARE THERE? ANSWER: There are five common business structures, but not all of them are legal entities. We'lI go through each one here and outline the benefits and pitfalls unique to each. LLC - single owner or partners, legal entity S Corp - designated tax status, legal entity С Corp - often a larger business, legal entity Business structures include: Sole Proprietorship - single owner, no legal formation General Partnership - multiple owners, no legal formation BONUS: Nonprofits can also be a legal business entity with the 501(c)(3) filing. BUSINESS WITHOUT A LEGAL STRUCTURES ENTITY Both sole proprietorships and general partnerships are business entities that exist outside of legal formation. While you can successfully operate a business without a legal entity, remember that you might be putting your business – and your personal assets – at risk in the case of a lawsuit or litigation. SOLE PROPRIETORSHIPS Benefits: Simplest business structure – just one owner and no legal formation Fastest startup – just begin operating your business Low cost – no filing fees Pitfalls: Tax hassles – must pay estimated taxes and self-employment taxes One of the riskiest structures – there are no protections for your personal assets No credibility - makes it hard to get business financing and credit GENERAL PARTNERSHIPS Benefits: Cost-effective - share financial responsibilities with multiple owners More resources – when you leverage the unique skills of each partner Better balance – as you share the load of managing and operating the business Pitfalls: Personal liability – you may be on the hook, not just because of your choice, but your partners' as well No legally binding agreements – in the case of disputes or clashes over how to operate the business Profit-sharing – even among partners who don't do their part to carry the load BUSINESS FORMED WITH STRUCTURES A LEGAL ENTITY We nearly always recommend taking this route. While there are startup costs, they are generally worth the return in terms of legal protection, credibility and legitimacy. LLC Benefits: Limited liability – your personal finances are safe, and your liability will never exceed what you've invested in the business - lower costs than Easy startup corporation formation, quick filing and simple ongoing requirements Flexibility – form in the state you choose; share profits with fewer restrictions than corporations Pitfalls: Tax headaches – your net income will be subject to self-employment taxes Finding funding – investors may be on the hunt for corporations to invest in, rather than LLCS Paperwork – some states require numerous documents to file an LLC; you'll need to go through all the proper steps before being approved by your Secretary of State S CORP Benefits: Tax designation – could save you money at tax time by utilizing pass-through taxation, similar to an LLC Separation from shareholders – shares can be sold without impacting the company Proven protection – similar liability limits to an LLC, keeping your personal assets covered Pitfalls: Shareholder limitations – you may have no more than 100 shareholders to maintain S Corp status, and they must all be U.S. citizens Shareholder pay – you must pay shareholders who are employees of the company market value compensation or risk having S Corp status revoked Strict requirements – more ongoing reports, paperwork and requirements than sole proprietorships, partnerships or LLCS C CORP Benefits: Limited liability – just like an LLC or S Corp, owners' personal assets are protected Funding opportunities – C Corps are more likely to attract investors and have more opportunities and avenues to raise capital Recruiting – C Corps are typically larger businesses that attract top talent looking for stock options Pitfalls: Double taxation – taxes are paid on company profit as well as on shareholder dividends Complex requirements – ongoing filing requirements are more complicated and time-consuming than other business entities Higher costs – from starting up to sustaining the business, C Corps cost more to run and maintain SO, DOES YOUR BUSINESS ENTITY MAKE THE GRADE? All entities come with their own perks and downsides. But once you've decided, Incfile is here to handle some of the hassle of filing your legal business entity, so you can focus on acing business ownership. II. %24 >>>>

Cheat Sheet to Business Structures

shared by kevin39 on Aug 24
What we’re offering here is a cheat sheet, which has the answer short and crisp. To ace business formation, you’ll need to study hard and look at how the business structure you choose impacts your...


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