This is a good question if you are starting up a new business venture. You have probably already decided on your business product, but you still have an more important issue to decide. You need to know what type of business entity structure will be the most beneficial and easy for your company. Have you heard of Limited Liability Company, C-Corporation, or S-Corporation? If your answer is yes, but you dont really understand the difference, then read the rest of this article.
You can use a number of business structures when creating your company. Each one comes with different benefits and liabilities. Here's an overview:
Sole Proprietorship " This is a one-person show in which the person running the business keeps all the profits, but also carries all the responsibility and liability. This is the least desirable form of business structure because of the huge personal risk that is involved for the business owner. Partnership " In a partnership, two or more people are the owners of the business. They usually put similar amounts of money and time into the business and they are all responsible for running the business. They also incur debt for the company and can be held personally liable if the company were to fail or be sued for debts. Limited Partnership " In a limited partnership there are at least two partners involved in the business, but they do not necessarily have the same level of responsibility or authority in the company. One or more of the partners will take part in decision making and the others are silent partners. Limited Liability Company (LLC) " This is the most flexible business structure and one of the easiest to set up. It is a good entity for a small or large business because it provides personal asset protection and offers an easy format for distribution of profits and losses. With this entity structure the liabilities of the company are only taken from business assets, not the personal assets of those who own the LLC. C-Corporation - There are two ways to file as a corporation: C-Corporation or S-Corporation. The C-Corp is the most structured form and the profits are taxed at both the corporate level and the stockholder level. There is no limit to the number of stockholders. This structure is taxed as a separate entity, unlike the S-Corp. The S-Corp is also a corporation but is limited by the number of stockholders it can have, which is 75. One of the advantages of this business structure is that the profits are not double taxed like they are in a C-Corp. This structure is a flow through entity, which means the profits and losses flow through to the personal tax return of the stockholders and are taxed on their individual tax return.
Financial institutions generally view the LLC and corporation structures as higher rated business entities. By choosing one of these structures for your business, you are presenting a more professional image to the financial institutions and they are more likely to offer business credit and trade credit to the business.
You can use a number of business structures when creating your company. Each one comes with different benefits and liabilities. Here's an overview:
Sole Proprietorship " This is a one-person show in which the person running the business keeps all the profits, but also carries all the responsibility and liability. This is the least desirable form of business structure because of the huge personal risk that is involved for the business owner. Partnership " In a partnership, two or more people are the owners of the business. They usually put similar amounts of money and time into the business and they are all responsible for running the business. They also incur debt for the company and can be held personally liable if the company were to fail or be sued for debts. Limited Partnership " In a limited partnership there are at least two partners involved in the business, but they do not necessarily have the same level of responsibility or authority in the company. One or more of the partners will take part in decision making and the others are silent partners. Limited Liability Company (LLC) " This is the most flexible business structure and one of the easiest to set up. It is a good entity for a small or large business because it provides personal asset protection and offers an easy format for distribution of profits and losses. With this entity structure the liabilities of the company are only taken from business assets, not the personal assets of those who own the LLC. C-Corporation - There are two ways to file as a corporation: C-Corporation or S-Corporation. The C-Corp is the most structured form and the profits are taxed at both the corporate level and the stockholder level. There is no limit to the number of stockholders. This structure is taxed as a separate entity, unlike the S-Corp. The S-Corp is also a corporation but is limited by the number of stockholders it can have, which is 75. One of the advantages of this business structure is that the profits are not double taxed like they are in a C-Corp. This structure is a flow through entity, which means the profits and losses flow through to the personal tax return of the stockholders and are taxed on their individual tax return.
Financial institutions generally view the LLC and corporation structures as higher rated business entities. By choosing one of these structures for your business, you are presenting a more professional image to the financial institutions and they are more likely to offer business credit and trade credit to the business.
About the Author:
Learn more about how to set up your business structure correctly and know the pros and cons of each kind of entity. Learn how to present your company as an established business so that you can get business lines of credit from lending institutions and start obtaining vendor credit without risking your personal FICO scores.
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