CHOOSING BUSINESS ENTITY

It is very important for an individual to choose the right structure from the Beginning to incorporate its business to avoid paying more taxes and facing re-structuring complexities in future. When beginning a business, you must decide what form of business entity and state is appropriate to establish your business. Your form of business determines which income tax return form you have to file. The most common forms of business are the sole proprietorship, partnership, corporation, and S corporation. A Limited Liability Company (LLC) is a relatively new business structure allowed by state statute. Legal and tax considerations enter into selecting a business structure.

MOST COMMON TYPES OF ORGANIZATION:

Sole Proprietorship - this is the easiest method of organizing your business. A sole proprietorship can be conducted by a single individual, or by an individual and his or her spouse. There are no specific filing requirements other than a business license and fictitious business name. The owner is taxed as an individual on the income or losses of the business. The major disadvantage of the sole proprietor is that the individual owner is personally responsible for all debts and liabilities of the business. This means that all of your personal assets, not just the assets of the business, are at risk. READ MORE

C Corporation - is an organization that is organized under specific provisions of the General Corporation Law. A Corporation must have corporate officers and bylaws, and must be registered with the State. In addition, the corporation will be taxed at the State and Federal level on its earnings. A corporation offers the protection from personal liability for the owners. This "corporate veil" of protection does not offer protection from liability in the case of fraud, failure to pay taxes, under capitalization of the corporation, or commingling of personal and corporate funds. READ MORE

S Corporation - Similar to the "C" Corporation, the "S" corporation offers all the benefits of a corporation, but with a different tax structure. S corporations pay no Federal income tax, but pay state level tax. The S corporation's shareholders report the company's income or losses on their personal tax returns. READ MORE

Limited Liability Company (LLC) - combines the limited liability protection of a corporation with the flexibility and pass through taxation of a partnership. Like the shareholders of a corporation, the owners (members) of an LLC are not personally responsible for the debts or liabilities of the LLC. The LLC has no limitations on who may be involved. The LLC can be managed by its members or by managers. READ MORE

Ready to Incorporate or Form an LLC.