The business structure you establish for your company influences every aspect of your business. Your business structure determines when your business is liable for certain situations; it affects the taxes you owe; it impacts how much capital you need to start your business; it can affect your ability to raise additional funds. Choosing the wrong route for business entity formation could mean losing control over your finances, having less protection against lawsuits, paying too much in taxes, or missing out on important benefits like access to credit.
At Fusion Legal & Tax, we have a skilled tax attorney on staff who specializes in forming business entities. As such, we are familiar with the pros and cons of all differing business structures.
There are four main types of business entities: sole proprietorships, partnerships, LLCs, and corporations. Each one offers different advantages and disadvantages. If you want to know which one best fits your needs, we’ve broken down key facts that you need to know about each option. Of course, the professional legal team at Fusion Legal & Tax will be able to walk you through the steps and help you decide what you should choose.
Business Structure Breakdown
As mentioned earlier, your business structure will influence every aspect of your business, from day-to-day operations to taxes and more. Here are some things to consider when selecting a structure or when you want to make changes to your current one.
Business Structure Options:
A sole proprietorship is a business that’s owned by one person; it does not require a separate legal entity such as a corporation. There are many advantages to being the owner of a sole proprietorship such as no corporate formalities, no annual filing requirements, low cost of operation, and ease of formation.
As a general rule, partnerships must follow certain rules and regulations regarding partnership agreements, ownership interests, distributions of income and profits, dissolution, and liquidation. While partnerships are generally considered to be easier to form than corporations, each partnership needs to be registered individually with the state.
Limited Liability Companies (LLCs) are popular because they offer limited liability protection for both business owners and investors. An LLC requires less initial capital investment than a corporation and is easy to form. In addition, LLCs can be taxed like partnerships, which means that members receive pass-through taxation on their distributive share of the LLC’s profit. Ultimately, the best advantage of the LLC is its flexibility. An LLC can be taxed as a sole proprietorship, an S-Corporation, or a C-Corporation.
Corporations provide shareholders with limited liability protection and are often used by larger companies. They can be difficult to manage compared to partnerships and LLCs. If you want to limit your personal exposure to liabilities, a corporation might make sense for you.
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This is just the basic information you need to know about business entity formation. However, there are many additional factors to consider that carry great weight for your future success. For instance, many of the details that are critical to optimal tax outcomes and succession planning are outlined in the operating agreements. Savvy business owners know that having a skilled tax attorney to prepare your operating agreements is crucial for a successful business strategy.
When it comes time to properly set up your business entity, contact Fusion Legal & Tax to work with our skilled legal professionals and tax specialists today.