Small business owners have a lot to think about when designing their companies. One of the most important decisions they need to make from the start is which business structure they are going to use. Ultimately, the structure that you choose for setting up your company will have certain tax and legal implications.
According to the U.S. Small Business Administration, sole proprietorships are the simplest and most common kind of business to establish. This structure is for unincorporated businesses that a single individual owns and runs. There is no legal or fiscal distinction between the owner and the company in a sole proprietorship, and the owner receives all profits while remaining responsible for all the company’s losses, debts and liabilities.
A corporation, or C corporation, is an independent entity that shareholders own. According to the SBA, that means the corporation itself is liable for all actions of the business and all debt that it incurs.
Corporations are more complicated than the other business structures because they have stricter tax and legal requirements with costly administrative fees. You can read more about how big corporations handle their taxes—and sometimes commit fraud—at USAttorneys.com.
There are a few different types of partnerships including joint ventures, limited partnerships, and general partnerships. In the simplest sense, a partnership is a single business that two or more people own, and each partner contributes to all aspects of the company while sharing in the profits and losses.
Limited Liability Corporation
An LLC provides the limited liability benefits of a corporation with the tax advantages of a partnership. Unlike shareholders of a corporation, owners of an LLC do not pay taxes as a separate business entity.
A cooperative is an organization or business that provides benefits for those who own and operate it. The members of the cooperative, or user-owners, distribute any profits that it earns among themselves.
Cooperatives are different from other business entities and typically have an elected board of directors that makes decisions based on how the members vote. There are several complicated steps to forming a cooperative, but a business lawyer can help.
An S corporation is similar to a C corporation, but its profits and losses affect the owners’ personal tax returns. Consequently, the IRS does not tax the business itself when it is an S corporation.
If you are trying to start a business but don’t know which organizational structure is the best fit for your company, Eric D. Anderson Law, LTD will help. We do everything from contract negotiation to local, state, and federal regulation compliance. Call 909-283-5494 to schedule a consultation with a Redlands business lawyer today.