How to Decide Which Business Structure Is Right for You

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You may be stuck trying to figure out which business structure is right for your business. Should you stay as a sole proprietor or should you go for partnership?  Picking a business structure is usually the first big legal decision you have to make as a business owner, and normally the most confusing decision you will have to make. Incorporating business required a lot of thought and careful considerations.

We have created this guide to give you general advice that can help you make a better decision on the type of business structure to incorporate. Before we gab get into the deciding factors when setting up a company, lets first understand the different business structures that exist.

C Corporation

These are legally considered separate entities from their owner. When it comes to income, it is taxed at the corporate level and is taxed again when it is distributed to owners.

Next, we have an S Corporation. This type of structure gives 100 shareholders or less the benefit of incorporating a company while being taxed as a partnership. Profits that are earned by the corporation are not taxed at the corporate level but get taxed at the individual level of the shareholders.

Limited Liability Company

A limited liability company, LLC, entails a corporate structure where members of the company cannot be held personally liable for company debts or liabilities.

Below an LLC, we have partnerships. It entails an arrangement in which two or more individuals share the profits and liabilities of a business venture.

At the lowest level is a sole proprietorship. It is an incorporated business with one owner who pays personal income tax on profits from the business. These types of businesses happen with little government regulations and they are the simplest businesses to set up.

Deciding on what structure to take

It can be a daunting task to decide on what type of structure to take. The first thing you need to put in mind is your concerns on matters liability. If you are working in a high-risk field or one that is susceptible to lawsuits such as medicine, food, among others, you need to choose a structure that protects you from liability.

The next thing to put in mind is how you will be hiring or contracting for your business. With an official business structure such as a corporation, you will be protected personally from the actions of your employees. If you hire someone and they make a mistake that results in damages, the corporation will be able to minimize your liability.

Consider the way you like to keep things, either simple or complex. While corporations and limited liability companies will give you protection from personal liability, they also differ in terms of paperwork. Corporations are more complex to run and manage. There is a requirement to appoint a board of directors and you should be holding annual shareholders meeting with directors. You should document key decisions made by shareholders and you should also file a separate corporate income tax returns.

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