Launching a business requires more than just putting in monetary investment. Working on an idea, resources and the best suitable business structure are few of the things you need to decide on before starting off a business. Now, speaking of choosing a business structure, it isn’t an easy task but demands a lot of thorough research.
Let’s go through the popular business structures that you can pick to get started with your entrepreneur journey.
Limited Liability Companies
Limited liability companies have become way more popular in recent years. More and more individuals find it convenient and profitable to start an LLC. In an LLC, the debts and other liabilities of the entity remain separate and owners are not held responsible for the same.
Simply put, the owners get the benefit of limited liability protection, which is why the majority of the people go for this type of business structure. An LLC also offers flexibility with its taxation treatment.
A partnership is a business arrangement between two or more persons as owners who share the profits and losses of the company. It’s considered as the most viable option for individuals and small businesses with low budgets. This business structure is governed by the state laws. Speaking of the taxation system, the partners pay the taxes and not the business itself.
An S corporation is a type of corporation that exists as per the specific requirements of the IRS (Internal Revenue System). The requirements include :
- Being incorporated domestically within the USA
- Not more than 100 shareholders
- Only one class of stock
- Shareholders meeting certain eligibility requirements
Generally associated with small businesses, an S Corp enjoys the regular benefits of incorporation along with the tax-exempt advantages of a partnership structure.
A C Corporation refers to a legal structure for a corporation in which the shareholders, or owners, are taxed separately from the business. This type of business structure is also subject to corporate income taxation and follows a double taxation treatment as both the owners and the entity pay the taxes separately.
Registration of a C Corp requires choosing a business name and filing articles of incorporation with the Secretary of State. A C-Corp also needs to obtain an Employer Identification number (EIN). Overall, establishing a corporation needs more regulatory formalities to be done throughout the existence of the corporation.
Sole proprietorship is the most common form of business ownership where there’s only a single owner bearing all the profits and losses of the company. It’s not considered as a separate entity like a corporation and that’s why it follows pass-through taxation. Forming a proprietorship includes selecting a business name which should not be used by any other business in your state. You would also need a seller’s permit to get your operations running. Let’s say you’re planning to establish your proprietorship business in California, then you require to obtain a California seller’s permit.
Before picking any business structure, make sure you do all your research related to your particular business needs. You may wish to hire a professional consultant to help you decide what type of business structure you should go with.