No matter what business you are starting, it is important to keep its order, this will save you money and legal issues in the future.
There are many different Legal Structures to register your own business.
Sole Proprietorship: This is one of the most commons and easy structures to start your own business. This structure is based as the name says in one person business. The owner is responsible and operates the business. In this way the business and the owner became as one unit in assets and profits. Taxes in this structure are filled jointly because the business income is the owner income. The cons of this structure is the low legal protection to the owner as he is responsible for all the liabilities and debts of the business putting in risk his belongings and assets.
Partnership: This structure focus in business where two or more people share the ownership. Each partner is responsible for the business, contributes in all aspects to the business as money, property, labor, etc. Each owner or member of the partnership receive or is responsible of any profits and losses. Partnership business file a annual report with all the income, deductions, and loses from the business operations, but instead of paying taxes, the business transfer the profits or losses to the members of the business and they report those incomes and loses on their personal tax returns.
Most business with this structure had a legal file where all the agreements between partners are stablished, even when is not a required to start a business, is a good thing to do. One of the cons of this model is that all the partners personal assets can be used to pay partnership’s debts.
C and S Corporations: Corporations are independent organizations directed and owned by shareholders. In this way, the corporation is responsible for all the legal actions and debts of the business and not the shareholder as others business structures.
There a few difference between C and S corps such as Taxation and Corporate Ownership.
C corps are separately entities and file a corporate tax return as a corporation. This could lead to a double taxation if the profits are distributed to the shareholders as a dividends because these will have to reports those dividends on their personal tax files.
By the other side, S corps are pass-through tax entities, this means that they file a federal return but do not pay taxes. The incomes for the corp are transferred to the shareholders and they report them on their personal tax return.
Limited Liability Company (LLC): LLC companies are business that combines aspects from other business structures, such a partnership and a corporation. This offer a protection to the ownerships from personal liability for debts held by the company. The owners in these companies can be multiple individuals or corporations. The taxes files are filed as a corporation, partnership or sole proprietorship for federal purposes. The process to start an LLC company is longer and require more paper work than other structures.
Every single structure es different between each other, If you are looking for something easy and fast starting and don’t require protection of your assets, starting an sole proprietorship or partnership could be the best option for your business. But if you are in need of legal protection or don’t want to put your assets at risk, even when it would take time to set, a corporation could be a good place to start.
Even when the different structures offers pros and cons, the goals and size of your business will help you to determinate what structure is the best choice.