When you are thinking about starting your own business, you have many important decisions to make. One of the most important is to determine how your business will be structured.As seen in the article Top 20 Web Resources for Business Newbies, there are myriad opportunities for guidance in all aspects of business development. This article discusses the various options available and their advantages.
Sole Proprietorship: This is the most common business structure, largely because it is the simplest to form and allows the owner to have complete managerial control. The owner is also liable for all financial obligations.
Under a sole proprietorship, there is no separate business entity. Instead, the business’ assets and liabilities are bundled with personal assets and liabilities.
Partnerships: Partnerships are the simplest way to create a business structure for two or more people. There are two common types:
- Limited Partnerships. One general partner has unlimited liability while other partners have limited liability (who also have limited control of the company). Any profits are passed on to partners’ personal tax returns and the general partner must pay self-employment taxes.
- Limited Liability Partnerships. Like limited partnerships but all partners have limited liability, protecting them from any partnership debts.
Limited Liability Companies: An LLC has advantages of both corporations and partnerships. Profits and losses can be passed through to personal income without incurring corporate taxes. However, members of an LLC are considered self-employed and must pay taxes accordingly, including contributions to Medicare and Social Security.
Corporations: A corporation is a legal entity separate from those who establish it. The corporation can make a profit, be taxed and be held liable.
The primary advantage of a corporation is that individuals cannot be held liable. Corporations, however, require lots of record-keeping and can be expensive to form.
There are multiple corporate structures to consider, including:
- C Corp. This corporation is the most common corporation structure and has a considerable tax advantage in that corporate taxes, not personal taxes, are applied to revenue. There are also no limits on the number of owners. If you are using the Rainmaker Plan® from Benetrends Financial, you MUST set up a C Corp. Read "The Ups (and Downs) of Using a C Corporation".
- S Corp. This structure limits the number of owners to no more than 100, all of whom must be U.S. citizens. Shareholders are taxed on income on a prorated basis based on their holdings.
- B Corp. Taxed like a C corp, the B corp is both mission- and profit-driven. This structure is not available in all states.
- Close Corp. A close corporation is run by a small number of shareholders without a board of directors and may not be publicly traded.
- Nonprofit Corp. These companies work in education, religion, social services, charitable, or scientific pursuits. They are exempt from state and federal taxes.
With so many possible business structures available, it is important to have a clear sense as to what works best for your entrepreneurial venture and funding possibilities. At Benetrends, we help companies by creating a C corporation structure that lets owners use their existing 401(k) funds to start a business. With the proper structure, Benetrends helps small business owners gain access to needed funding to fuel their entrepreneurial journey.
To learn how Benetrends can help your entrepreneurial aspirations become a reality, download Innovative Funding Strategies For Entrepreneurs today.