- Sole Proprietorship
The most simple and basic structure is the sole proprietorship. If you plan on owning and operating your business as a one person operation, this is likely the way to go. It is the easiest to set up, and no state registry is required. Your business taxes are essentially apart of your personal taxes and if your business is not profitable, you may be able to deduct your losses from your overall personal income (if you have other sources of income). One thing to note with a sole proprietorship is that you are fully liable, your personal financial and credit standing is on the line. If your business is high-risk financially or legally, this may not be the best option. If you think a Sole Proprietorship will work for you, we will walk you through the process of forming
- Corporation (C & S)
Corporations completely separate the owners from the business. The owners are considered "shareholders" and can be individuals or other companies (if C-Corp). A board of directors are appointed to make business decisions. Taxes for a corporation are different from the previously discussed structures. There are two main types of corporation structures, a "C Corporation" and an "S Corporation"
C-Corporation: C corps is the standard corporation structure. C corps are separately taxable entities. They file a corporate tax return and pay taxes at the corporate level. They also face the possibility of double taxation if corporate income is distributed to business owners as dividends, which are considered personal taxable income. Corporate income tax is paid first at the corporate level and again at the individual level on dividends. Learn more about C-Corporations
S-Corporation: S corps are pass-through taxation entities. They file an informational federal return, but no income tax is paid at the corporate level. The profits/losses of the business are instead “passed-through” to the business and reported on the owners’ personal tax returns. Any tax due is paid at the individual level by the owners. There are a few restrictions that an S-Corporation exclusively has.
- are restricted to no more than 100 shareholders, and shareholders must be US citizens/residents. C corporations have no restrictions on ownership.
- cannot be owned by C corporations, other S corporations (with some exceptions), LLCs, or partnerships.
- can have only one class of stock, while C corporations can have multiple classes.
Learn more about S-Corporations
You can start forming a Corporation today with
The most common type of Nonprofit Organization (NPO) is a the 501(c)(3) and is a company or organization that is formed to further a social cause or to provide goods, services and resources to the public. Common examples of 501(c)(3) NPO's are: religious and educational institutions, charity and volunteer organizations, research institutes, museums, organizations that bring awareness to a cause, etc. these are
A Nonprofit is not automatically tax-exempt. The NPO will have to file for tax-exempt status both federally and with their state, this is done by submitting a
1023 form to the IRS.
Learn more about non-profit's
You can start forming a non-profit today with
HOW TO STRUCTURE
Choosing the right legal structure is very important. Your structure plays a major role in how much in taxes you pay, your fundraising options and your personal liability. Let's discuss a few ways to structure your business.
Below are entity types that we will discuss.
- Sole Proprietorship
- Partnership (LP & LLP)
- LLC (limited liability company)
- Corporation (C-Corp & S-Corp)
- Nonprofit Organization
note that every business situation is different and this is not legal advice, rather a summary of your structure options. If you are not sure which structure is best for you after reading this section, we recommend consulting with a lawyer or CPA, it won't cost very much for a few questions.
- Limited Liability Company (LLC)
An LLC transfers the liability to the business and not to any personal member(s). Limited liability protects the owners personally against debts and lawsuits regarding the business. LLC owners (called members) however still directly own the business. An LLC can be owner operated or can hire one or more non-partners to operate the business. Like a partnership, an LLC can have multiple owners, but unlike a partnership an it can be owned or partially owned by another LLC or a corporation. If the LLC consists of a single-member it is considered a "disregarded entity" and filing taxes will be similar to that of a sole proprietorship. If the LLC consists of multiple members, filing taxes will be similar to that of a partnership. Members will have to file their profits / losses from the business on their personal income taxes. Tax filings for the LLC itself vary and it is recommended to talk to a CPA to find the best way to do so. The LLC owners / members are technically self employed (concerning taxes) but employees are not and the business will be required to file payroll tax if the LLC has staffed employees.
Note that business activities must be separate from the owners personal activities to maintain the limit of liability. It is important to keep record of your business contracts, debt, expenses etc. to provide proof that they are directly linked to business and not at all utilized for personal affairs. Learn more about LLC's
You can start an LLC today with
- Partnerships (LP / LLP)
A partnership is an option when there are multiple owners. There are two types of partnerships. The power, responsibility and liability of each partner is determined by which one of the following partnerships are formed.
Limited Partnership (LP): A limited partnership usually consists of one (sometimes more) "general partner" who ultimately makes the business decisions. The other partners are "limited partners" and typically contribute monetarily and / or with their skills. The general partner controls the business but also carries the legal and debt liability. Partners are taxed through their individual tax returns based off of the overall profits / losses of the company , in respect to their ownership percentage of the business. Read more about LP's
Limited Liability Partnership (LLP): A limited liability partnership consists of two or more equal partners. All partners in an LLP have a say in the business and typically take part in decision making. With an LLP, none of the partners will be personally liable for another members negligence, only their own. One factor to note with an LLP is that filing taxes can become complex. Again, partners are taxed through their individual tax returns based off of the overall profits / losses of the company , in respect to their ownership percentage of the business. Learn more about Limited Liability Partnerships
You can start forming a LP or LLP today with