A Brief Introduction to Your Business Entity Options

Choosing the right business legal structure is an important part of any company. Whether you are a solo entrepreneur or working with several people on a large project, choosing the right legal structure can make or break a business. Below are several legal entity options that you may want to consider if you are just starting out.

Sole Proprietorships

A sole proprietorship involves one individual who owns the company. Some people do not consider a sole proprietorship an actual legal entity because there are no additional steps to create the business structure. Instead, a sole proprietorship is an extension of the individual who owns the company. Nonetheless, a sole proprietorship is considered an option for a business entity just like other types of legal structures.

In a sole proprietorship, you file no separate tax return, and there are no special tax rates that apply. Essentially, the business’s taxes are part of your personal taxes. This kind of legal structure also offers no asset protection; your personal assets are still at risk from creditors who associate with your business. Only one person owns and operates the business, but you may still have employees or independent contractors that work for you as well.

Corporations

When most people think of business structures, they automatically jump to considering a corporation. A corporation is perhaps the most formal business structure available. It creates a separate legal entity for your business that has its own tax rate and reporting requirements. Requirements to maintain a corporation are sometimes in-depth and cumbersome, which is why many smaller companies choose to avoid this type of corporate structure.

It also must have a Board of Directors and shareholders who own portions of the company. These people may overlap significantly, but they do not have to.

Corporations offer asset protection for individuals because the property and assets that the business owns are generally not associated with the individual members of the corporation. That is, because the corporation is a separate legal entity, there are fewer concerns with personal liability for business debts.

An S corporation is a type of business that is based on a tax election. Technically, it is not a separate legal entity status. Instead, it simply chooses to be taxed as an individual instead of a C corporation or traditional corporate structure.

Limited Liability Company (LLC)

An LLC is often considered a hybrid between a corporation and a sole proprietorship or partnership. It offers the benefits of limited liability found in a corporation with the pass-through taxation of a sole proprietorship or partnership. That usually means there are less reporting requirements and lower taxes, but you also have the benefit of asset protection.

Choosing the right corporate structure for your business is an important endeavor. Having complete information about all of your options is a vital part of the decision-making process. For more information about these structures and other business entity options, contact Legacy Planning Law Group by calling 904-880-5554.

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Written by Legacy Planning Law Group

Legacy Planning Law Group is dedicated to working with individuals and families to help protect the assets they have built throughout their life, and make everything simpler for families who have lost a loved one. We help thoughtful people achieve the peace of mind that comes with planning their personal legacy and passing on family harmony.