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BUSINESS STRUCTURES
What business structures are available for your business?
- Sole Proprietorship
- General Partnership
- Limited Partnership
- S Corporation
- C Corporation
- Limited Liability Company (LLC)
Sole Proprietorship
The simplest form of business in which a sole owner and his business are not legally distinct entities; the owner is usually liable for business debts.
General Partnership
A partnership in which there are no limited partners, and each partner has managerial power and untitled liability for partnership debts.
Limited Partnership
The limited partnership has limited and general partners. The general partners manage the business and are individually liable for the debts of the partnership. The limited partners are limited in the amount they can lose by the amount of money they invested in the partnership.
S-Corporation
A corporation that is eligible, and does elect to be taxed under the Subchapter S of the Internal Revenue Code. Basically, shareholders pay tax on the corporation's income by reporting their pro rate shares of pass-through items on their own individual income tax returns.
C-Corporation
A corporation is an organization authorized by state law, to act as a legal entity distinct from its owners. A corporation has it's own name, and has it's own powers to achieve legal purposes, and therefore, is a separate legal entity.
Limited Liability Company (LLC)
The LLC is a hybrid between a corporation and a limited partnership. LLC's provide protection from personal liability, just as corporations do, and yet LLC's receive the tax treatment of limited partnerships, or a C corporation, whichever the members of the LLC desire.
Business Structures
The best structure for building business credit is one that will:
- Separate you from your business.
- Has it's own tax identification number.
- Separates the debts of the business from that of the owners/officers.
The business structures that will do this are:
- S Corporation
- C Corporation
- Limited Liability Company (LLC)
This is not to say that building business credit can not be accomplished with a sole proprietorship or partnership but in the end it will be limited.
Benefits of a corporation
The benefits of a S corporation, C corporation or LLC:
- Limits personal liability of officers and owners.
- Ability to separate personal and business credit, leveraging both.
- Protection of personal assets from the business.
- Protection of corporate assets from the owners and officers.
- Build a separate business credit profile, with professional help fast.
- Easier to raise capital.
- Easier to solicit investors.
- Lower tax liability.
- Corporate Image.
- Lower risk of IRS audit.
When is the best time to incorporate?
The best time to incorporate is when your business:
- Is a high liability business.
- Has over $25,000 per year in sales.
- Wants to take advantage of the many tax benefits of a corporation.
- Wants to utilize the many retirement plans for officers/owners.
- When an Entrepreneur wishes to use business instead of personal credit.
(The above criteria is only a guideline)
Business Structures
When to use a S Corporation:
- When the owners live in a state with no personal state income tax.
- Have one or two individuals who own the company. (Can be as many as 35)
- Have sales less than $250,000.
When to use a C Corporation:
- When the owners live outside the country.
- When the owners live in a state with a state income tax.
- When several individuals are involved in the ownership.
- When other entities are in involved in the ownership.
- Have sales greater than $60,000.
When to use a Limited Liability Company (LLC)
- Any partnership.
- Owning real estate for investment purposes.
- Have several entities that own the business.
- Looking for complete protection of the owners personal liability.