If you are running or creating a small business, Britt & Burroughs understands that you have a lot of decisions to make. This September, we will look into some of the options for choosing a business structure and how we can help.
Taxes Influence Business Structure
When starting a business, one of the first things you will consider is your business structure. It determines, among other things, how your business is taxed. Here is a look at the most common ones:
- Sole proprietorship – This is the easiest type of business to form. It does not require much paperwork and gives the founder complete control. The IRS does not separate the individual from the business, so tax liability is carried by the owner. Because you cannot sell stock, it is not a good option for gaining investors. But it can be a low-risk choice for entrepreneurs who want to test a business idea before trying to raise capital.
- Partnership – While there are many different subsets of this category, the common denominator is that two (or more) people own the company together. In this structure, multiple owners share contributions, profits and the tax burden. Partnership agreements vary and will include how decisions are made, how profits are divided, and how the tax liability is shared.
- Corporation – While there are also many different forms a corporation can take, the basic idea is that a corporation is a separate legal entity from its owners. It protects the owners from liability in the business, allows the company to have shareholders, and requires a great deal of record-keeping. Corporations must pay income tax on their profits.
- LLC – A limited liability company gives owners some protection from tax liability, and allows more owner control and lower tax rates than a corporation would. Members of an LLC pay self-employment tax. And, depending on the state, may be required to re-form if any owners change.
Not Sure Which is Best? Call Us
If you are planning to form or restructure your business, Britt & Burroughs can offer guidance for choosing a business structure to suit your business goals.